‘What a Fool I Was’
As the year closes, we take a look back at the lessons we learned—and relearned—in 2022. Here's one: “The activities that make people happiest include sex, exercise, and gardening.”
Good morning!
Here at the 21 Hats Morning Report, we scour the web daily, looking for the most important stories, posts, podcasts, videos, and tweet threads for business owners. And then, at the end of the year, we review everything we’ve highlighted, looking for the best of the best -- the most important lessons, the most insightful analyses, the most inspirational profiles. And that’s what we’ve published below, featuring thoughts from the likes of: Dan Kahn, Ami Kassar, Steven Wilkinson, Reg Zeller, Carey Smith, Kristie Wolfe, Mallory Ottariano, Josh Inglis, Sam Taggart, David Bell, Mitchell Baldridge, Jack Stack, Jason Fried, Gene Marks, Brent Beshore, Michael Girdley, Michael Brown, and Brit Morse.
If you know another entrepreneur or business owner who could benefit from these words of wisdom, please forward this email.
MANAGEMENT
Dan Kahn learned an unexpected lesson from the pandemic: “Until March 13, 2020, I was under the impression that leadership meant sitting in the trenches with your team and showing them what to do. Then doing it with them and watching as they took every action to ensure they repeated every task the exact way I showed them and maintained my extremely high standards. Success reinforced that notion. Over a dozen years, we grew an average of 20-25 percent per year. Clients were happy, and the business was healthy. I ran a tight ship and kept a close eye on every manager and employee. My favorite phrase was ‘Don’t do your best. Do MY best,’ which was management at its highest form in my mind. I knew how to do every job in the company and was willing to prove it daily if necessary. What a fool I was.”
“By ‘managing’ these people with the expectation that they needed to perform every task the way I would, I was cloning my best work experience but also my limitations and blind spots.”
“That’s when I realized that I was doing the wrong job. The CEO should not be in the trenches with the team showing them how to do every task.”
“The amount of change my little firm has undergone over the past two years and how much better we are today in terms of both client and employee happiness is shocking.”
“We have employees in seven states, people who work full-time remotely or in the office, and many who split the difference. Pay is higher, benefits are better, people seem happier, and it shows in their work.” READ MORE
Ami Kassar says the primary job of a business owner is to get fired: “Over the last 12 years of building my company, I have constantly been trying to eliminate my role by empowering team members to do what I do. What I have learned is, the cheese keeps moving. As I can offload tasks and functions to others better at them than I was, the company grows. And then there are new tasks and initiatives in front of me. Think about what you spend your time on? How would you do it if you had to give up 80 percent of it in 60 days? Try it. The exercise will open you and your company up to all kinds of possibilities.” READ MORE
Steven Wilkinson makes the case for hiring a business coach: “I can’t think of any high-performance activity outside of business in which so many of the main protagonists have convinced themselves that it is a sign of intelligence and fortitude to do as much as possible by themselves, without consistent training, coaching, and holistic support around all the factors that determine consistent successful outcomes. No professional athlete in their right mind would imagine that they could possibly deliver permanent top level performance with bad diets, bad sleep habits, little to no training and development, and only sporadic recourse to professional support and have a chance of winning.”
“And the results of the SME business universe speak volumes: 85 percent of all businesses seeking to be sold, fail in that objective and end up being liquidated.”
“Over 100 percent of the value added (measured by EBIT or operating profit) by SME companies in every industry is captured by the top 35 percent of companies. The rest are either breaking even or losing money.”
“Most U.S. business owners (substantially greater than 50 percent) make less than $50,000 in annual total take home remuneration, in no way compensating for the risk or the hours worked.” READ MORE
Carey Smith says too many entrepreneurs fail to conduct market research: “In the businesses I've owned, we talked to our customers obsessively. We wanted to know everything we possibly could about their needs, desires, and dissatisfactions with our products. We then used that knowledge to conduct market research on how to solve their frustrations. This—and the fact that we owned our manufacturing facilities—allowed us to swiftly improve our products and expand the product line to meet market demand.”
“That was my approach at Big Ass Fans, where we grew on average 43 percent annually over nearly 20 years. We took what most people thought was a boring, basic product and turned it into something unique, over and over again.”
“At the fan company, we had a team that called each customer—not to hear what we did right but to learn what went wrong. We asked pointed questions about every step, from ordering to installation to that first flip of the switch.”
“Yet for some reason, very few young entrepreneurs we meet today at my investment firm, Unorthodox Ventures, seem to have the stomach for it. They'd rather bask in praise. Ask questions? Well, never.” READ MORE
Here’s what Warren Buffett saw years ago in a relatively small candy maker: “As Buffett researched See’s, he realized that the value of the company’s intangibles — things like its brand and customer loyalty — far exceeded the numbers on paper. So, the usually shrewd investor did something extremely out of character: He bought See’s for $25 million — more than 6x its earnings, and 3x its book value. It was Buffett’s biggest purchase up to that point, and one of the first companies Berkshire Hathaway bought outright. It also represented a major shift in his approach to investing, setting him on a path of ‘paying higher prices for better businesses.’”
“In a letter, Buffett cautioned [chief executive] Huggins to never sacrifice quality for profit. He warned that the company shouldn’t try to scale too quickly, and should instead continue to produce the chocolates locally, in ‘limited quantities.’”
“‘There is a certain mystique attached to products with geographical uniqueness,’ he wrote, harping on the value of branding.”
“While stores and volume grew only 2 percent and 3 percent respectively, See’s raised its effective price per pound by 10 percent per year — far above the rate of inflation.” READ MORE
Reg Zeller says the biggest mistake owners make is not joining a peer group:
THE ENTREPRENEURIAL LIFE
A study of who gets wealthy in America may surprise some people—but not business owners: “A groundbreaking 2019 study by four economists, ‘Capitalists in the Twenty-First Century,’ analyzed de-identified data of the complete universe of American taxpayers to determine who dominated the top 0.1 percent of earners. The study didn’t tell us about the small number of well-known tech and shopping billionaires but instead about the more than 140,000 Americans who earn more than $1.58 million per year. The researchers found that the typical rich American is, in their words, the owner of a ‘regional business,’ such as an ‘auto dealer’ or a ‘beverage distributor.’”
“First, rich people own. Among members of the top 0.1 percent, the researchers found, about three times as many make the majority of their income from owning a business as from being paid a wage.”
“Second, rich people tend to own unsexy businesses. ... These include auto repair shops, gas stations, and business equipment contractors.”
“The third important factor in gaining wealth is some way to avoid ruthless price competition, to build a local monopoly. The prevalence of owners of auto dealerships among the top 0.1 percent gives a clue to what it takes to get rich.”
But of course, as we all know, money doesn’t necessarily buy happiness: “The activities that make people happiest include sex, exercise, and gardening.” READ MORE
A survey found entrepreneurs struggling with mental health and not getting the support they need: “Starting a venture from scratch can be risky, exhilarating, exhausting — sometimes all at the same time. The Hustle surveyed more than 300 entrepreneurs on the state of their mental health, and a whopping 63 percent reported dealing with burnout, with 59 percent saying they’ve dealt with anxiety. While the numbers are high, the findings aren’t shocking given how perilous founding a new business can be. Readers reported the top stressors are financial concerns (21 percent) followed by day-to-day stress (16 percent), work-life balance (15 percent), and uncertainty about the future (12 percent), among many others.”
“Dr. Michael Freeman, a psychiatrist and researcher at UC San Francisco, conducted a study in 2015 that illustrates how different founders are from the rest of the population. He found that 72 percent of entrepreneurs reported having a mental health history, in contrast to only 48 percent of comparison participants.”
“Freeman, who was once a co-founder and CEO himself, identified the need for this type of research through that experience. ‘Everybody can hold a job, some can lead a team or club, but very few people can start and grow a business,’ he says.”
“Stigma could be to blame for the lack of mental health support for founders: 30 percent of respondents said they do not think there are mental health resources available to entrepreneurs, and another 40 percent said there are some, but not enough.” READ MORE
OPPORTUNITIES
Kristie Wolfe builds special vacation properties to list on Airbnb: “Over the past decade, Wolfe has built some of the most popular and unique vacation rentals on the platform, including: A jungle treehouse in Hawaii. A real-life hobbit hole in Washington. A converted fire lookout in the middle of a forest. A potato-shaped tiny home in Idaho. In Airbnb circles, Wolfe is a legend — not just for her creative builds, but for her ability to figure everything out herself, often on an impossibly small budget. She constructs most of her properties from the ground up, in off-grid locations, with the helping hand of her 70-year-old mom. Less than a decade ago, Wolfe was making $13/hr working odd jobs. Today, her properties gross hundreds of thousands of dollars per year.”
“She hires someone on Upwork to write a press release. She gives away a few free stays to get user feedback and high-quality photos. She outsources her property management to the automated platform Guesty.”
“‘The most common question I get is how I find people to take care of my properties in such rural locations,’ she says. ‘My trick was to change the ad from ‘housekeeper’ to ‘caretaker.’ It sounds much more appealing, and the difference in the quality of applicants is night and day.” READ MORE
Amazon’s Delivery Service Partners thought they were getting a shot at the American Dream: “On a Veterans Affairs job board, between advertisements for public loan forgiveness and a Red Cross blood drive, is an attractive small-business opportunity for returning soldiers. Want to finally be the boss of your own future? Amazon will offer you the chance to start your own delivery company, no experience required. This advertisement attracted the attention of one veteran when he was getting medical care at the VA following multiple military tours. He thought the idea of becoming his own boss sounded like an appealing opportunity. The materials touted that he could make more than $75,000 and perhaps as much as $300,000 every year. The application required that you have $10,000 in startup capital, but the ad he saw also said that the fee might be waived for veterans.”
“He was all in. He applied and was almost immediately accepted to start his own limited liability corporation. Just like that, he was an Amazon Delivery Service Partner.”
“‘I feel like something needs to be done about this. It’s a sham,’ the veteran said. ‘What they’ve done is taken two years away from my life, causing me to miss out on job opportunities and things I could have been doing.’”
“For some financially successful DSP owners, the difference in profit and revenue makes them wonder if the effort is worth the reward. ‘I grossed $3 million from Amazon,’ another DSP owner told Protocol. ‘And somehow, after I pay for everything, I end up making less than $90,000.’” READ MORE
Meraki Meadows is the first large scale saffron farm in Texas: “Here, sisters Andrea McDonald and Lyneil Beck, their husbands, Karl McDonald and Andy Beck, and their combined total of six children grow the world’s most expensive spice. Sometimes called red gold, saffron is primarily grown in Iran, where the country's future as the world’s largest producer is threatened by sanctions and climate change. However, small growers in the United States—like the McDonalds and the Becks—are discovering the stigmas of the Crocus sativus flower can sell for between $20 and $75 per gram, according to Margaret Skinner, a research professor and extension entomologist who runs a listserv called SaffronNet at the University of Vermont. ‘You do the math—that’s approximately $9,000 a pound, at minimum,’ she says, adding that a one-acre plot has the potential to earn $100,000 by its third year of production.”
“Skinner has been collecting data about climates and their corresponding challenges to share with farmers aiming to diversify their crops by planting saffron. ‘As it turns out,’ she says, ‘Iran and West Asia are similar, temperature-wise, to West Texas.’”
“Harvesting saffron crocus flowers requires a delicate touch, so heavy-duty equipment wasn’t necessary to get the process started. The families already had everything they needed: a small amount of land, simple equipment, and a lot of people.”
“Meraki Meadows sells whole stigmas by the half gram for $20, and the most-potent red tips, which they call ‘premium choice,’ for $30. They’ll soon add a one-gram jar.” READ MORE
MARKETING
As this entrepreneur learned the hard way, you do no want to be dependent on any one platform:
Everyone’s searching for a successor to third-party tracking: “Companies such as Facebook and Google deployed technology to trail people everywhere they went online. If someone scrolled through Instagram and then browsed an online shoe store, marketers could use that information to target footwear ads to that person and reap a sale. But that kind of invasive tracking is being scaled back or blocked by Apple and Google to protect people’s privacy.”
“Many small businesses already appear to be spending less on digital ads that rely on third-party data, such as Facebook and Instagram ads, and are reallocating marketing budgets to platforms with lots of first-party information, like Google and Amazon.”
“Shawn Baker, the owner of Baker SoftWash, an exterior cleaning company in Mooresville, N.C., said it previously took about $6 of Facebook ads to identify a new customer. Now it costs $27 because the ads do not find the right people, he said.”
“Mr. Baker has started spending $200 a month to advertise through Google’s marketing program for local businesses, which surfaces his website when people who live in the area search for cleaners.”
“Amber Murray, the owner of See Your Strength in St. George, Utah, which sells stickers online for people with anxiety, started experimenting with ads on Amazon after the performance of Facebook ads deteriorated. The results were remarkable, she said.”
“‘I think the golden days of Facebook advertising are over,’ Ms. Murray said. ‘On Amazon, people are looking for you, instead of you telling people what they should want.’” READ MORE
The founder of an apparel maker triggered a sales surge by explaining the cost of domestic manufacturing on social media: “Youer is a multi-million-dollar brand of athletic clothing for women. In one video [Mallory] Ottariano published August 9, titled ‘How Much It Costs to Make Ethical Fashion,’ the 32-year-old founder reveals the costs—down to the penny—that go into making her brand's Do It Dress, which she wears on camera. ‘Spoiler alert,’ she says in the intro to the video. ‘It's a lot of money’ to make clothes in the United States. All told, it costs more than $65 to make the dress and that includes things like $19.25 for the fabric, $2 for the zipper, $32 for a Los Angeles-based team to cut and sew the pattern.”
“While a fast fashion brand might sell a similar garment for $25, Youer's Do It Dress retails for $154 on its website, and retailers purchase the dress from Youer at half that price, she explains.”
“The upshot of Ottariano's accounting for viewers: the price tag on the dress might seem high but it represents a tiny profit margin without which the brand couldn't sustainably manufacture domestically.”
“The price video paid off in more ways than one for the founder. It has received more than 300,000 views and generated more than 23,000 visits to Youer's website in the two weeks after it was published, representing a 250 percent increase over the site's average.”
“Even more important, Youer saw a 65 percent increase in orders.” READ MORE
When naming a startup, misspellings continue to be the go-to option: “Creatively misspelled words, long popular for startup names, continue to rank among the top choices for nascent companies. Other top naming trends include short brands, ‘ly’ suffixes, puns, and human first names, according Crunchbase’s latest deep-dive into startup brands. ‘A lot of what’s driving things is people saying: I really want to name it that but the domain is taken,’ said Athol Foden, president of Brighter Naming, a corporate naming consultancy.”
“Misspellings have become so popular that there are often multiple companies with the same spell check-triggering names. The Crunchbase dataset includes several companies named ‘Swapp,’ ‘Shyft,’ and ‘Flyp,’ for instance ...”
“Much of the enthusiasm for misspellings, Foden observes, comes from companies seeking to reach their audiences via their mobile phones. ‘There’s only so much real estate you can see on a small phone,’ he said, so leaving out vowels may actually help a bit.”
“Our name survey found several examples of companies picking catchy word combos that also illustrate what they do. ... Standouts include TeamOut, a platform for organizing team offsites; Starchive, a place where creators can archive their works; and Leasecake, a provider of tools to make managing leases easier.”
“The advantage to a multi-word name is that there are a lot more options to choose from, said Foden, noting that many of his favorite company monikers are plays on words. One of his top picks isn’t a venture-backed startup but rather a travel company that goes by the name Please Go Away.” READ MORE
PUBLIC RELATIONS
Josh Inglis tells startups they don’t have to hire him to handle their PR—and much of what he says applies to established businesses as well: “If you’re reading this, it’s likely because you (or the startup you work for) is about to complete (or has just completed) a funding round. Congrats! So now’s the time to hire a PR firm to get the word out, right? Maybe. Maybe not. You can do this on your own, because making hay out of funding news is not rocket science, even if most tech PR firms would have you think it is.”
“Your startup may be the biggest thing in your life, but not in the reporter’s. Ask yourself a hard question: ‘Does The New York Times really care at all about my no-code platform designed for horses?’” (Okay, bad example: If you had a no-code platform that targeted a horse customer demographic, I bet The Times would be interested).”
“Look in your backyard. What local outlets are covering tech and startups in your market? Your local business journal and newspaper are two obvious choices, but more and more cities have their own startup-focused (or startup-curious) outlets. We’re big fans of the team at Inno. Check them out and see if they cover your city.” READ MORE
SALES
A door-to-door salesman is trying to rebrand door-to-door sales: “For eight minutes, Sam Taggart had them all hooked. Relaxed and sincere, he roamed the stage at the Salt Palace Convention Center, selling 1,500 door-to-door salesmen on selling. It was a crisp January morning at the fifth D2DCon, an annual conference in Salt Lake City that’s the centerpiece of Taggart’s campaign to elevate a profession reviled by nearly everyone. You can hang up on a telemarketer, but not on the insistent young man who won’t leave your doorstep until you buy some goddam thing—pest control, an alarm system, solar panels, a new roof, magazines, scented candles, paintless autobody dent repair, or perhaps tri-tip steaks from a delivery van that, he swears, just broke down in front of your house.”
“The best door-to-door salesmen can earn more than a million dollars a year, but it’s a punishing way of life. Unlike the salesman who hawks minivans or enterprise software, the door knocker can’t network at the Rotary Club, make a catchy commercial, or research his prospect’s needs.”
“Taggart’s company, the D2D Experts, has an online ‘university’ of hundreds of videos that show sales reps exactly what to say and how to say it.”
“One trusty method is the ‘yes train,’ an idea formalized in the 1880s by John H. Patterson, who founded National Cash Register. Patterson believed questions that elicit a ‘yes’ prime the customer to agree to a purchase.” READ MORE
But if you want to sell to millennial buyers, you may need to adjust your approach: “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
PRICING
This landlord asks tenants to set their own rent: “[Dion] McNeeley, who calls himself ‘lazy,’ would rather skip the rehab process and inherit tenants. He doesn't want to fix up the place, find a tenant, and potentially have to relocate someone. The problem with inheriting tenants, and the reason other investors prefer to look for empty properties, is that the tenants who already occupy the space might be paying far below market average, especially if they've been living there for a while.”
“That's where his ‘binder strategy’ comes into play. After acquiring a property, he'll set up a meeting with his tenants and bring a three-ring binder. The first page of the binder features a picture of the property they're renting and the amount McNeeley paid for it.”
“The second page includes a map that shows his property and all of the rentals in the area that have the same number of bedrooms and bathrooms. The following pages zero in on each of the similar rentals in the area and the amount they're renting for.”
“He gives the example of one of the duplexes he bought. His tenants in both units were paying about $1,100, but the area average rents were closer to $1,600, he said.”
"‘I literally ask the tenant: What do you think is fair?' said McNeeley. ‘They know their budget. And they're now educated.’ Both sides of his rental said $1,460.”
“‘The tenants asked for more than a $300 increase, because it's still below the area average and they're still getting a deal,’ said McNeeley. He's now making about $700 more a month. ‘That took a good return on my investment to a great return on my investment.’ Plus, ‘the tenants are happy,’ he added.” READ MORE
There’s a reason free shipping is so effective: “In a study about free shipping in ecommerce, former Wharton School professor David Bell found that free shipping lulled buyers into financially unsound decisions. The consumers he studied preferred to save $6.99 and get free shipping, versus saving $10 on the purchase price but still paying for shipping, even though the savings would have been greater. In addition to the positive glow inherent in the free offer, Ariely says the popularity of free shipping is attractive for another reason.”
“Consumers, he says, have a difficult time understanding why shipping should cost anything: They feel okay paying for a tangible product, but they don’t compute how the time and labor involved with shipping should drive up the price.” READ MORE
MANUFACTURING
Carey Smith warns against outsourcing: “Too many founders remain convinced that manufacturing overseas is the only way to go, as central to launching a business as all the other mistakes they've been told are part of the modern business model: landing a big valuation, spending gobs on Facebook advertising, selling on Amazon, and hiring an agency to build a brand. The main appeal of all of these moves is that they appear to be easier than the alternatives. Founders assume their product and brand will be in the hands of people much more experienced than they are and that, by ceding control, they'll have less to worry about. Meanwhile, I argue that if something's easy, it's almost certainly not the right thing to do, and that if founders are not in control, they're being controlled.”
“I've heard all the arguments for outsourcing, but they really boil down to three words: cheaper labor costs. There's no denying that people in the Far East put in longer hours for far less pay than American workers, and if your goal is to make something as cheaply as possible, that can be hard to resist.”
“But, in the long term, outsourcing doesn't come cheap, and if your goal is to create a product and business you can be proud of, then long-term should be the only consideration.”
“At Big Ass Fans, our focus was always on good, not cheap. We charged more for our product and found that our customers were always willing to pay more when they understood why.” READ MORE
ECOMMERCE
Amazon promises it will be nicer to the merchants that sell on its marketplace: “Amazon.com says it will stop summarily suspending online sellers, a peace offering to small- and medium-size businesses that have long complained of being booted off the site arbitrarily. Under a new initiative, called ‘Account Health Assurance,’ Amazon staff will work with merchants one-on-one to resolve any issues without resorting to suspensions, the company said. The program went live in the U.S. and Canada on Wednesday and will later expand to other countries.”
“Some 2 million merchants are responsible for more than half of the goods Amazon sells. But for years, these sellers have lived with the fear that they could be abruptly suspended, sometimes after being falsely accused by a shopper or competitor of selling counterfeit products.”
“Many appealed their suspensions but found themselves passed from one Amazon team to another with no resolution. Meanwhile, their web stores were shuttered, with merchandise piling up unsold.”
“In 2020, Bloomberg chronicled the experience of a Los Angeles clothing retailer who was kicked off the site for allegedly selling fakes, which he denied. Amazon declined his appeal and destroyed what he said was $1.5 million of inventory.” READ MORE
FINANCE
Malibu’s Burgers, a popular all-vegan restaurant in Oakland, is filing for bankruptcy—even though it says business is booming: “‘This has nothing to do with the business as a whole,’ [said co-owner Darren Preston], attributing the filing to a decision to take out a ‘bad loan.’ The restaurant's largest outstanding liability is a claim for $81,435 owed to Retail Capital, doing business as Credibly, a financing platform for small- and medium-sized businesses based in Southfield, Michigan, with offices in New York state and Tempe, Arizona. In October, Credibly sued Malibu’s, Preston and his wife and co-owner, Natasha Fernández-Preston, in Maricopa County Superior Court of Arizona for breach of contract, seeking just over $80,500. An Arizona judge granted a default judgment to Credibly in late February, allowing it to begin levying the restaurant’s bank accounts.”
“Preston said he thought he was taking out a simple loan for about $85,000 last year when he and his wife were considering opening a second location.”
“But what he signed up for was what's known as a receivables purchase agreement, in which a financing agent purchases the rights to future debts owed to the business. Credibly agreed to pay Malibu's $85,000 up front in exchange for collecting $114,325 in future receivables owed to the restaurant.”
“The interest rate on paper was 9.79 percent, but Preston said its calculations show it will end up paying more than double that rate.”
“‘We got a little bit overzealous,’ Preston added. ‘We really wanted to expand — we still would like to at some point — but we should have seen the red flags.’” READ MORE
Ami Kassar says a line of credit should be part of the furniture: “I spoke with an entrepreneur yesterday whose business is growing 50 percent this year, and her B2B sales have grown from 10 percent to 30 percent. For the first time, cash flow is becoming an issue.”
“Her business has high margins. But you can't catch up when it takes 60 days to get paid, and you have to pay your employees.”
“I like to see lines of credit at greater than 10 percent of top-line sales, or 85 percent of [accounts receivable] and 50 percent of inventory.” READ MORE
A San Francisco startup is helping local merchants finance their growth with ‘small business bonds’: “After around two years of pandemic-related delays and disappointments, San Francisco ‘ice cream for adults’ company Humphry Slocombe finally opened up its first location—and fifth overall—on the Peninsula this week. ... What went surprisingly smoothly was getting financing for the new store, typically a stumbling block for small businesses reeling from the pandemic. Instead of relying on a typical bank loan, Humphry Slocombe was able to raise $250,000 from 180 individual investors by offering small business bonds, a novel financial product created by SMBX, a 35-person San Francisco startup.”
“In 2020, when Humphry Slocombe was looking to raise money for the new Redwood City location, banks were largely turning them away. The lenders that were calling them back were offering money but at exorbitant interest rates.”
“In 2012, the passage of the JOBS Act opened up the ability for private companies to issue public securities. SMBX was formed to provide access to capital without forcing entrepreneurs to give up equity.”
“Since launching in February 2020, roughly 70 businesses listed on SMBX’s platform have raised more than $6 million to help support and expand their ventures.” READ MORE
TAXES
There are a lot of tax advantages to being a business owner. Are you making the most of them:
HUMAN RESOURCES
Jack Stack says it’s past time to give HR a seat at the table: “When the presentations concluded, and the collective five-year growth plan was flashed on the screen, Keith [an HR associate] checked his pad and then raised his hand to ask a question. ‘It’s really awesome to see all the growth everyone is planning over the next five years,’ Keith said. ‘But, based on my calculations, that means you’ll collectively need to hire a lot of new people to do all that work. What’s your plan to accomplish that?’ It was like Keith punched me in the gut. I couldn’t breathe. He was absolutely right. If we wanted to take advantage of all the opportunities in front of us, we needed to completely rethink how we approached the recruitment, development, and retention of our people not just now—but also well into the future.”
“Moving forward, HR needs to have as much input as the CFO and CTO when it comes to setting the future strategy of the company.”
“The skills they apply to their jobs day in, and day out, have always been valuable. Now, we need them to be heard at a strategic level. We’re counting on them to ensure we have the right people in the right seats to make our plans.”
“Their input cannot be treated as just another job to be done. Rather, they need to be the ones leading the tough conversations with everyone in the organization around questions like: Do we have enough people? If not, how can we attract them?” READ MORE
Is remote work killing collaboration, brainstorming, and innovation? Jason Fried doesn’t think so: “There's an assumption that four walls, a whiteboard, a table, some space, and a door at a shared address are necessary ingredients in the creative soup that is working creatively with other people. But ideas don't give a s@#% about any of those things. Ideas like the shower. Ideas like our pillows. Ideas like commutes. Ideas like walks. Ideas like the morning, or late nights. Ideas like daydreams. Ideas like you doing something else so they can surprise you. Ideas aren't contained. They aren't located. They don't reside. They're nomadic. They aren't something you control — they bubble up, they arise. You don't get to have them when you want. They come to you.”
“And you absolutely don't need to be huddled up breathing the same air to work on an idea. To play with an idea. To toss one back and forth with a partner, or two, or five.”
“You just need the right minds, wherever they are, feeding on insights, wrapped around the same concepts. It's a fluid process, not a fixed one. You need communication, not presence.” READ MORE
SMALLBIZ TECH
Gene Marks has some suggestions for persuading your staff to use your CRM: “Customer Relationship Management systems are not accounting systems. CRM systems don’t do billing, cash receipts, disbursements or payroll. If a CRM system isn’t used, a company still continues to operate. If an accounting system isn’t used, a company doesn’t operate. This is why so many of my clients complain that the number one CRM challenge they have is actually getting people to use the system. Here’s how to fix it.”
“Don’t make your CRM database too complex. Cut down on the fields. Minimize the data entry. Scale back your complex sales and service processes. The less you’re asking your people to do, the easier it will be for them to do it.”
“Get rid of your spreadsheets and replace them with just a few key reports. Start with a simple pipeline report where every opportunity is tracked with details including sales potential, probability of close, projected close date, last action, and next action.”
“My clients can be segregated into three groups: the CRM experts, the CRM users, and the CRM dummies. Leave the experts alone, give a bit of help to your users, and focus your training and support on the dummies. Because let’s face it: There are some people that can pick up technologies and other people that can’t plug in a TV set.” READ MORE
LITIGATION
The Carbone’s v. Carbone food fight ended with the respective owners breaking bread instead of each other: “Julian Barsotti, the owner of Dallas restaurant Carbone’s Fine Food and Wine, launched a trademark lawsuit in June 2022, three months after the similarly named Italian joint Carbone opened in Dallas and created confusion for Barsotti’s business. Now Barsotti has agreed to close his restaurant on Oak Lawn Avenue on Jan. 1, 2023, with plans to reopen under a new name — not one that sounds anything like Carbone’s Fine Food and Wine. Barsotti said he planned to renovate the 10-year-old restaurant Carbone’s anyhow. He’d like to close for 90 days.”
“Neither party would disclose the terms of the deal, but Barsotti’s attorney Matthew Yarbrough clarified that ‘New York Carbone is assisting Julian in opening his new, elevated family Italian concept.’ Barsotti can keep and display his family memorabilia, photos and Carbone’s logos inside the new restaurant.”
“In another unexpected outcome, Barsotti and Jeff Zalaznick, the co-founder of Carbone parent company Major Food Group, say they have become friends. During a mediation session in August 2022, Barsotti and Zalaznick agreed the lawsuit could be settled instead of going to trial.”
“Afterward, the two ate Tex-Mex and drank tequila at Barsotti’s Dallas restaurant Odelay. They tossed around plans to travel to Aspen and Guadalajara. They swapped industry stories. Barsotti said it was easy to work out a deal once they sat in the same room.” READ MORE
BUYING A BUSINESS
Brent Beshore, who has bought 13 companies in 12 years, suggests some questions to ask before buying a business, including: Why isn’t anyone else excited about this opportunity?
Would you buy this chain of Las Vegas wedding chapels? Michael Girdley offers his analysis: “Let’s say you meet someone at the blackjack table and decide to spend your life together starting right now. This is just the business for you! Show up. Pay a few hundred bucks, and you’re married. The numbers: Asking price: $3.41 million. Gross revenue: $2.4 million. Adjusted net income: $1.25 million.”
“So what’s to like: It’s got a ton going for it. High gross and net margins (52 percent adjusted net income). Customers making once-in-a-lifetime (okay, maybe once-this-year) type decisions and willing to splurge. You get to manage Elvis impersonators marrying people!”
“So, what’s the catch? My ‘this seems too good to be true’ alarm is going off. It’s too cheap for what is, seemingly, a great business. Things I would look at on this one: What’s up with the location leases? Do I lose these locations soon? How is it getting customers? Google? Flyers? How durable is the revenue? Is the great performance a function of a post-Covid wedding boom? I’d want to see the previous year’s books.” READ MORE
SELLING A BUSINESS
Teamshares specializes in buying small businesses from retiring owners—and turning their employees into owners: “Days and nights of anxiety took hold of Roger Newman in December 2020. His business partner revealed he wanted to retire, and they both decided the time had come to sell Stahl Plumbing, Heating & Air Conditioning. ... While waiting for a buyer, Mr. Newman, 63, and his partner, Joe Scarfone, 67, lost sleep until a deal came through that not only allowed the owners to sell the Swissvale, [Pa.]-based company but also paved the way for its 30 employees to keep their jobs and eventually own a majority of the business.”
“Stahl was purchased in June by a financial technology company called Teamshares, which so far has helped about 70 businesses across the country become partially employee-owned. Teamshares gave the 30 employees at Stahl a 10-percent ownership stake at closing and an opportunity to own up to 80 percent of the company over 15 to 20 years.”
“With the sale of Stahl complete, Teamshares put its own manager in place and will use a portion of the profits to transfer the remaining 70 percent of the business to the workers over time. Teamshares will keep a perpetual 20 percent ownership stake in the 72-year-old company.”
“Teamshares, which receives its funding from venture capitalists, did not disclose how much it paid for Stahl Plumbing. The owners were paid cash.”
“With tens of thousands of businesses listed for sale each year, Teamshares focuses on buying those in the $1 million to $5 million valuation range.” READ MORE
A retiring business owner surprised his employees with life-changing bonuses: “Three days after Christmas, Michael Gartner summoned the employees of the Iowa Cubs minor league baseball team to a staff meeting at Principal Park, the team’s stadium in Des Moines. The team’s sale to a global sports and entertainment company had closed that day, and Mr. Gartner, 83, said he wanted to give the employees their new business cards. But there were no business cards in the envelopes that he handed out. Instead, inside were checks worth $2,000 for every year each employee had worked for the team — $600,000 in total for the 23 full-time workers.”
“Mr. Cohen described the checks as ‘a life-changing gesture’ for some longtime staff members. ‘Seeing all the people who had been there for two decades, three decades, tears streaming down their faces, it was a very special, emotional day,’ he said.”
“‘We’ve had above-standard health insurance and 401(k) contributions, and we’ve always been the organization that people looked at and said, Gee, I wish everybody did that,’ Mr. Wehofer said. ‘That’s always been his way, as long as I’ve been part of the organization.’”
“In a list of the 30 most valuable minor league baseball teams in 2016, Forbes placed the Iowa Cubs at No. 22, and estimated the team’s value at $30 million. Mr. Gartner declined to disclose the sale price.” READ MORE
EXITS
Doug Henri co-founded of a New Jersey barbecue joint: “Ruthie Henri walked from her kitchen into the smoke-scented dining room of Henri’s Hotts Barbeque and greeted a familiar customer with a gentle smile, a somber shake of her head, and then an embrace. And then she hugged another customer. And another. ‘I’m trying to be out here more because I’m usually in the back,’ said Ruthie, pausing at our table to say hello. ‘A lot of people still don’t know me.’ The introduction may seem unnecessary considering she co-founded this restaurant 14 years ago. But Ruthie has been pushing herself to be a more visible part of the always warm hospitality here since her husband, Doug Henri, the renowned pit master and namesake of this beloved South Jersey roadhouse, died from Covid-19 in December [2021] at 66.”
“‘We spent our lives here. We slept here. And Doug and I were such an incredible team. We rarely had arguments. I did the kitchen and the food and sides, and he was outside with the smoker.’”
“‘Keeping the restaurant open has been the best thing for me because I was going nuts. It’s helped me because I’m able to reach out to people. I can help people.’” READ MORE
Fred Franzia founded Bronco Wine Company: “Franzia championed affordable wine for the masses and frequently criticized his higher-priced competitors. ‘Who says we're lower priced? We're the best price. The others, I think, are overpriced,’ Franzia told the San Francisco Chronicle in 2009. Perhaps his most notable contribution to American culture is Charles Shaw, a.k.a. ‘Two Buck Chuck.’ The wine, sold exclusively at Trader Joe's since 2002, earned that nickname for its affordable price that undercuts its higher-priced competitors. ‘Take that and shove it, Napa,’ he once said in an interview.”
“Bronco Wine is one of America's biggest wine companies, with a portfolio of more than 100 brands spanning from wine, spirits and ready-to-drink cocktails.”
“Wine Spectator estimates that it's the 13th largest wine marketer in the U.S., moving more than 3.4 million cases last year.” READ MORE
Kent Taylor took his own life after experiencing lingering side effects from Covid 19: “Taylor, who’d spent years as a restaurant manager, got turned down by more than 100 investors before three local cardiologists decided to back him to start his own. The first Texas Roadhouse opened in Clarksville, Ind., in 1993. Within six years, the young steakhouse chain had to close three of its first five restaurants owing to bad site selection. Taylor kept mementos from each of those duds in his office—two mounted fish and a cow skull—and for the rest of his life, he personally visited and approved every location.”
“Taylor got his earliest employees to take a chance on him and Roadhouse with its partnership model. Store managers are required to pay $25,000 upfront and sign a five-year contract, but they then get 10 percent of the restaurant’s bottom line on top of their salary.”
“In November 2020 he had contracted Covid and since then had suffered from severe tinnitus, a condition in which the brain responds to hearing loss by generating sounds to compensate for the ones the ear is no longer processing.”
“The tinnitus had progressively worsened to the point that it sounded like ‘a jet airplane taking off in your ear 24 hours a day, seven days a week,’ says his son, Max Taylor.” READ MORE
Duvall Hecht founded of Books on Tape: “Mr. Hecht was an Olympic gold medalist in rowing, a Marine Corps pilot, and with the establishment of Books on Tape in 1975, an entrepreneur who harnessed the still-new technology of cassette tapes to offer bibliophiles a novel way of experiencing literature. He was working at a brokerage firm in Los Angeles in the late 1960s, with a roughly one-hour commute on either end of his workday, when he became ‘frantic,’ he told the Los Angeles Times, to escape his daily misery on the road.”
“Books on Tape became the formal name of his business, which he established in 1975 with help from his first wife, Sigrid, and with seed money from the sale of his Porsche.”
“Mr. Hecht insisted that customers of Books on Tape receive no abridgments. Only the full works, as conceived by their authors, would do. Tolstoy’s ‘War and Peace’ ran 45 tapes.”
“Books on Tape advertised in highbrow publications including the New Yorker magazine, the Wall Street Journal, and Smithsonian magazine. By Mr. Hecht’s account, the company catered to ‘the absolute upper 5 percent of the socioeconomic structure.’”
“Books on Tape had amassed 5,000 titles by 2001, when it was sold to Random House for a reported $20 million.” READ MORE
Dan Wieden co-founded an influential advertising firm: “Wieden co-founded ad agency Wieden and Kennedy, based in Portland, Oregon, with late partner David Kennedy in 1982. The agency went on to famous advertising campaigns for companies like McDonalds, Bud Light, and Old Spice. But the agency is best known for helping a certain sneaker company become one of the most recognizable brands on earth. Nike's ‘Just Do It’ was famously dreamed up by Wieden and first appeared in a TV commercial for the brand in 1988. ‘Thank you Dan, for throwing the doors wide open for people to live up to their full potential,’ the Wieden and Kennedy Twitter account said in a post announcing his death. ‘We will miss you so much.’”
“The firm is also known for seeking out unique perspectives by hiring people without traditional advertising backgrounds. Matt O'Rourke, a former creative director at the agency, said Wieden once explained that approach by asking, ‘Why would I hire ad people?’”
“Wieden, who famously said he would never sell the agency, transferred ownership into a trust before he died in an effort to ensure Wieden and Kennedy would remain independent indefinitely.” READ MORE
John Y. Brown helped Col. Sanders build Kentucky Fried Chicken: “Mr. Brown had his first success as a door-to-door salesman. In selling encyclopedias, he strove to meet moms rather than dads at the front door. He asked whether they had an educational system for their children. If they admitted to lacking such a system, he had the perfect opening to propose a set of encyclopedias. ‘I really don’t know how I ever passed the bar [exam],’ he told Nation’s Restaurant News much later, ‘because all I did in law school was play poker and sell encyclopedias.’ After completing his law degree in 1960, he joined his father in a law practice. One early client was Harland Sanders, the founder of KFC, who wanted tax advice.”
“Col. Sanders had a recipe and a chicken-cooking technique but hadn’t developed a systematic expansion strategy. He sometimes slept in his car while on the road selling his ideas to restaurant owners. Mr. Brown had no restaurant experience but saw the potential for expanding and franchising more aggressively.”
“With partners, he agreed in 1964 to buy KFC for $2 million. The company went public two years later. While the number of KFC restaurants soared, efforts to diversify into roast beef and fish-and-chip outlets fizzled.”
“After hitting a peak in 1969, KFC stock began to fall steeply. In 1971, Mr. Brown sold the company to Heublein and stepped down as chief executive. He had been worn down by professionals recruited to bolster the original small management team.”
“‘You never saw a more negative bunch,’ Mr. Brown said. ‘Those guys came in with textbooks under their arms telling us all the things we weren’t supposed to be doing. If I’d have listened to them in the first place, we’d never have started Kentucky Fried Chicken. It got to be no fun, so I got out.’” READ MORE
MEDIA
Earlier this year, Brit Morse of Inc. magazine published a list of the best newsletters for business owners. You’ll never guess who’s No 1: “The newsletter 21 Hats founded by longtime journalist Loren Feldman is a daily email newsletter that combines articles, interviews, and insights with the most important news of the day for business owners. In addition to news, the letter often features interesting stories written by business owners themselves, about the struggles, hopes, trials, and tribulations of what it's like to run their own company.” READ MORE
Again, if you happen to know someone who might be interested in reading the best newsletter for business owners—and I bet you do!—please forward this email to them. We all benefit as the 21 Hats community grows.
The next regularly scheduled 21 Hats Morning Report will land in your in-box on Tuesday. Until then, here’s wishing you and yours the happiest of new years.
Thanks for reading, everyone!
— Loren