Twelve Hours a Day, Six Days a Week

In our latest podcast episode, the owners talk about what it takes to offload tasks so they can start working on the business instead of in it.

Good Morning!

Here are today’s highlights:            

• The problem with selling direct-to-consumer is the cost of digital marketing.

• More and more products are being returned, but understanding “the refund effect” can help.

• Mark Zandi is growing increasingly bullish on the economy.

• Can the founder of a vegan chain and the founder of a cheesesteak chain find happiness together?

THE 21 HATS PODCAST

Twelve Hours a Day, Six Days a Week: This week, we meet Jennifer Kerhin, the newest addition to the 21 Hats Podcast team. Jennifer’s business, SB Expos and Events, is an event-management business that survived the shut down in 2020 and has grown to more than $3 million a year in revenue. When Covid first hit, Jennifer tells Jay Goltz, she really thought it would put her out of business; in the end, she says, it made her stronger. Even so, she is very much stuck working in her business, while looking for ways to extract herself from day-to-day tasks someone else could handle. But how do you free yourself up so that you have the time to put the people and systems in place that you know you need? And how long should that take? “I hate to tell you,” says Jay, “it took me 10 years, but I'm going to help you here, so it's going to take you 10 months.”

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

OPPORTUNITIES

The latest trend in adult entertainment? Bouncy houses: “Rodolfo Schulz, a 29-year-old clothing brand owner, finished his second Corona at a child’s birthday party near San Diego and then clambered into an adults-only bouncy house. At 6-foot-5, he bonked his head on the ceiling. ‘I thought about trying to do a flip but I’m almost 30, so that probably wouldn’t be a good idea,’ he said. More adults have been finding joy and stress relief in nostalgic childhood hobbies such as drawing in coloring books and playing dodgeball. The bouncy house industry has jumped in.”

• “Big Bounce America, a traveling inflatable event now visiting cities across North America, has adults-only sessions with DJs and food trucks. ‘Everyone MUST behave like an overgrown child,’ Big Bounce’s website says.”

• “In New England, XtremeCraze’s ‘indoor inflatable air parks’ market to grown-ups: ‘If you’ve ever watched a bounce house full of kids at a festival or birthday party and thought, I wish they had these for adults, you’re in luck’”

• “Grahame Ferguson, the co-chief executive of XL Event Labs, Big Bounce America’s parent company, said adults have grown to about a third of his global bouncy-house business: ‘The appeal of being in a giant bouncy castle kind of transcends all borders and cultures.’” READ MORE

MARKETING

Direct-to-consumer brands keep re-discovering bricks and mortar: “When Nate Checketts co-founded men’s sportswear brand Rhone, he asked other founders of online startups what their biggest regrets were. Their answer: waiting too long to sell their goods in department stores and other traditional retailers. ‘The view was that department stores aren’t cool, and traditional retailing is dead,’ Checketts said. ‘It was such a poor assumption.’ Those brands that Checketts spoke to built themselves on the belief that traditional retailers were relics of a bygone era. Now, they and their peers are becoming fixtures in the very stores that they had left for dead. What changed? These companies—and other, more-established brands that followed them—found that cutting out the middleman was harder than they anticipated.”

• “‘Wholesale is profitable from day one,’ Checketts said, referring to the practice of selling goods through a third party such as a department store or mall chain. ‘E-commerce takes longer. Some digital brands never reach profitability because they spend so much money on marketing to acquire customers.’”

• “The miscalculation was the rising expense of acquiring customers online, they said. A flood of startups all buying Facebook ads and other digital marketing initially pushed up costs. Advertising online got more expensive after privacy changes by tech companies restricted how people are tracked as they move around the web.”

• “‘Beating customers over the head with marketing is far less efficient than shipping a crate of shoes to Nordstrom,’ said Tom Nikic, an analyst with Wedbush Securities.” READ MORE

Retailers who understand “the refund effect” can mitigate losses from product returns: “In six experiments we found that consumers treat refunds as money already lost, so spending these funds on another purchase feels less painful. Research participants were more likely to spend money from a product refund than from a bonus, and even more likely to spend refunded money than unexpected income, like lottery winnings and tax refunds. We call this ‘the refund effect.’ In one laboratory experiment, for instance, we gave all participants $4. Some of the participants were asked to use the money to buy a stress ball that they later learned they could return, which most did. Others in a control group made no initial purchase. We then offered everyone the opportunity to keep their $4 or use it to buy a $5 Starbucks gift card at a discount.”

• “Only 48 percent of the control group used their $4 to buy the gift card, whereas 78 percent of participants who received the refund bought the gift card. We replicated this study with an online sample where the returned product was a gift card from a big-box retailer (i.e., Best Buy or Kohls).”

• “In this experiment, only 10 percent of the control group chose to purchase the Starbucks gift card, whereas 25 percent of participants with refunded money used it to buy the Starbucks gift card. Retailers who understand the dynamics of the refund effect — when, why, and how it works — stand to mitigate one of the perennial headaches of the industry.”

• “The lesson for retailers? Instead of resorting to practices whose harsh transaction costs can alienate customers, sometimes permanently, creating return policies and practices informed by the refund effect can be an effective way to reduce the revenue loss incurred by product returns in a way that benefits both consumers and retailers.” READ MORE

Maybe your influencer doesn’t have to be human: “A recent study suggests that companies are still usually better off going with human influencers, who are often seen as more credible and trustworthy than a digital personification. But that isn’t always the case. Virtual and human social-media influencers can be equally effective for certain types of posts, the research suggests. Why would consumers look even somewhat favorably upon virtual influencers that make comments about real products? Over the past few years many well-known companies have used virtual influencers to boost their presence on social media.”

• “The thinking is that virtual influencers can be fun and entertaining and make a brand seem innovative and tech savvy, says Ozan Ozdemir, a doctoral candidate at the University of Alberta’s School of Business and one of the paper’s co-authors. Ozdemir adds that virtual influencers can also be cost-effective and provide more flexibility than a human alternative.”

• “There’s a limit, though. ‘When it comes to an endorsement by a virtual influencer, the followers start questioning the expertness of the influencer on the field of the endorsed product/service,’ he says. ‘Pretending that the influencer has actual experience with the product backfires.’” READ MORE

HUMAN RESOURCES

An experiment is giving Canada a big edge in the global race for labor: “At a time industrialized countries around the world are confronting declining birth rates and aging workforces, Canada is at the forefront of betting on immigration to stave off economic decline. A country about as populous as California has added more than all the residents in San Francisco in a year. Last week, Canada surpassed 40 million people for the first time ever — with growth only expected to continue at a rapid pace as it welcomes more immigrant workers, refugees, and foreign students across its borders.”

• “The rewards are apparent. Population gains have boosted hiring and consumption, helping the economy withstand a rate-hike campaign by the Bank of Canada — so much so that the central bank this month had to resume tightening after a pause.”

• “Yet in a country that’s long been home to one of the world’s hottest housing markets, the government’s plan has drawn criticism that increasing immigration targets merely boosts economic output without raising living standards for individuals.”

• “Nearly one in four people in Canada are now immigrants, the largest proportion among the Group of Seven nations. At the current pace of growth, the smallest G-7 country by population would double its residents in about 26 years, and surpass Italy, France, the UK and Germany by 2050.” READ MORE

THE ECONOMY

Mark Zandi says the economy is threading the needle, weak enough to quell inflation but strong enough to avoid recession: 

READ THE THREAD

REGULATION

Texas is nullifying laws that require water breaks for workers: “In a week when parts of the state are getting triple-digit temperatures and weather officials urge Texans to stay cool and hydrated, Gov. Greg Abbott gave final approval to a law that will eliminate local rules mandating water breaks for construction workers. House Bill 2127 was passed by the Texas Legislature during this year’s regular legislative session. Abbott signed it Tuesday. It will go into effect on Sept. 1. Supporters of the law have said it will eliminate a patchwork of local ordinances across the state that bog down businesses.”

• “The law will nullify ordinances enacted by Austin in 2010 and Dallas in 2015 that established 10-minute breaks every four hours so that construction workers can drink water and protect themselves from the sun. It also prevents other cities from passing such rules in the future. San Antonio has been considering a similar ordinance.”

• “Texas is the state where the most workers die from high temperatures, government data shows. At least 42 workers died in Texas between 2011 and 2021 from environmental heat exposure, according to the U.S. Bureau of Labor Statistics.” READ MORE

INTERNATIONAL

Smaller businesses in China are suffering far more than expected: “When the government finally brought an end to its strict zero-Covid policy late last year, many economists expected a strong recovery. It hasn’t arrived. Consumer spending, factory orders, and exports are among many indicators showing signs that the recovery is losing steam. A recent survey of manufacturing purchasing managers in China showed a second consecutive month of contraction for small companies. China’s small-enterprise purchasing managers index is now at 47.9; a reading below 50 shows business activity is slowing. Scott Yang, a wine and tea seller in Wenzhou, a city in China’s wealthy Zhejiang province, said many local business owners he knows are laying off employees and trying to cut costs, in response to a drop in factory orders.”

• “Less than 40 percent of small and medium-size enterprises are operating at full capacity, which means producing all of the goods they can, according to the latest survey conducted by the China Association of Small and Medium Enterprises, which sends questionnaires to 3,000 SMEs in the country every month.”

• “Economists warn that the problems facing small businesses can’t be isolated from the wider economy. Because small businesses are such a major source of employment, particularly in large cities, their struggles reflect—and could worsen—wider economic strains.” READ MORE

THE ENTREPRENEURIAL LIFE

Can the founder of a vegan chain and the founder of a cheesesteak chain find happiness together? “Aisha Kamaria Cole, who goes by the name Pinky Cole, has been called a visionary and a provocateur. She also has a knack for helping meat eaters step outside their comfort zones at her plant-based burger chain, Slutty Vegan. Stepping outside her own comfort zone became a priority when she met Derrick Jermaine Hayes, the founder of Big Dave’s Cheesesteaks in June 2020. ‘Before I met him, I never would have talked to anybody that has a cheesesteak restaurant,’ she said. Not in a romantic way, anyway, because of her vegan principles. But ‘his personality was so infectious that, for the first time in my life, I felt like, OK I’ll let this pass.’”

• “In the summer of 2020, Atlanta, like other major cities, was rocked by social unrest. Protests erupted after the murder of George Floyd, and though Mr. Hayes had established himself as a supporter of other Black-owned businesses in the city, the windows of Big Dave’s downtown location, his second store, were bashed in.”

• “‘I went on social media to talk about it not because I was angry,’ Mr. Hayes said. ‘I was hurt.’ Ms. Cole, who heard about the incident, messaged him to ask if she could help. He declined her offer. ‘But it would be cool to meet,’ he wrote back. As owners of two popular Atlanta restaurants, ‘I had heard things about her, and she had heard things about me.’”

• “Mr. Hayes’s vows were off the cuff. ‘I wanted to give my raw emotions, to say exactly what I was feeling at that moment,’ he said. Before their guests, he told Ms. Cole he loves her more than he loves breathing. ‘We will raise our family and build empires and be billionaires,’ he said.” READ MORE

Thanks for reading, everyone. — Loren