‘What Doesn’t Keep Me Up at Night?’
In our latest podcast, our regulars take questions from other entrepreneurs about hiring, motivating, delegating, pricing, and what keeps them up at night.
Good Morning!
Here are today’s highlights:
People are giving out five-star ratings “like it’s candy.”
Independent pediatric practices may become a thing of the past.
The owner of two of San Francisco’s largest hotels is simply walking away.
Obituary: the past caught up with a visionary pizza chef.
THE 21 HATS PODCAST
“What Doesn’t Keep Me Up at Night?” This week, we did something different. We recorded this session in Chicago at our very first 21 Hats in-person event. In May, some 20 impressive entrepreneurs from around the country, from different industries, with businesses of different sizes and stages, gathered to talk shop for three days. The last thing we did was to record this episode in which we gave the participants the opportunity to ask the podcast regulars anything they wanted. Those regulars included Jay Goltz, Sarah Segal, and Dana White, and the questions addressed everything from hiring to motivating to delegating to pricing to coping with stress to what they wished they’d figured out sooner and to what still keeps them up at night.
And when there were no more questions, I asked those who attended the Chicago event what I could have done to make it better. That I would invite criticism in a conversation being recorded for a podcast audience, took some of the participants by surprise. But, as you’ll hear, it worked out pretty much the way I hoped.
You can subscribe to the 21 Hats Podcast wherever you get podcasts.
CUSTOMER SERVICE
Customer ratings have become meaningless: “Confusion over what constitutes 5-star behavior for certain services, combined with the guilt of potentially hurting someone’s livelihood, has people defaulting to perfect scores. Ratings padding is particularly rampant for services involving personal interactions. Just like the children in the fictional Lake Wobegon, everyone is ‘above average’ on some apps—way, way above. Ride-share ratings are so high that Lyft drivers whose scores dip below 4.8 out of 5 stars are asked to work on boosting their performance. Drivers under 4.6 risk getting deactivated, the company said.”
“Customers say some U.S. apps are designed to encourage 5-star ratings. Lyft, for instance, asks passengers what went wrong if they rate drivers 4 stars.”
“‘I think it’s really tacky,’ driver Donnie Freeman says about his peers begging for ratings. Freeman, based in Biloxi, Miss., doesn’t offer any of those perks but says he acts like an ambassador for his city, known for its casinos. He gives tourists suggestions on where to go and what to eat.”
“Good manners earned him his 5 stars, he asserts, though it doesn’t take much. ‘People hand out 5 stars like it’s candy,’ he said.” READ MORE
HEALTH CARE
Independent pediatric practices are struggling to survive: “The practice was busy this day; it is always busy. And yet it is struggling, straining under the weight of unprecedented financial challenges, including rising Medicaid enrollment and steep labor and supply costs. Simultaneously, it’s had to cut down on the number of patients it sees each day due to staffing shortages and longer visits by patients with increasingly complex conditions, including, ever more commonly, mental health concerns among pre-teens and adolescents. This is the story of many independent pediatric practices in Massachusetts today. Serving the health of children has never been more vital — as patients require increasingly complex care. And many practices, particularly those caring for high numbers of patients on Medicaid, say they cannot sustain the work.”
“Longer visits, meaning fewer visits, have hurt revenue, even with help of some federal grant money. Revenue at Bornstein’s practice was down 20 percent in 2020 and again in 2021, compared to pre-pandemic levels. Last year revenue was still down 10 percent compared to pre-pandemic levels.”
“At the same time, expenses have ticked up. The practice must compete against other industries to hire staff, and is paying more to recruit and retain them. Salary costs have swelled by 20 percent over pre-COVID levels. Medical supplies have likewise grown more expensive.”
“Treating children with mental health diagnoses is increasingly required of pediatricians, but providing that care comes at a cost, given the low insurance reimbursement rates. One commercial insurer pays 30 percent more for a wart removal than for a typical office visit for depression, according to Bornstein.” READ MORE
Could ChatGPT replace your doctor? “To conduct the test, a team of researchers from the University of California in San Diego lurked on r/AskDocs, a Reddit forum where registered, verified healthcare professionals answer people's medical questions. The researchers selected nearly 200 representative questions on the forum, from the silly-sounding (‘Swallowed a toothpick, friend said I'm going to die’) to the terrifying (‘miscarriage one day after normal ultrasound?’). They then fed the questions into the virtual maw of the bot ChatGPT, and had a separate group of healthcare experts conduct a blind evaluation of answers from both AI and MDs.”
“The results were shocking. For one thing, ChatGPT came out well ahead of the human doctors on usefulness. Almost invariably, the chatbot answers were rated as three or four times as reliable as the ones from the poor wee humans.”
“What's more, the bots didn't show any of the distressing tendency to make stuff up that they often have in other circumstances.”
“But here's the most striking part: The chatbot answers, on average, were rated seven times as empathetic as the ones from humans. Seven times! They provided just what you want from your doctor: care and an emotional connection.” READ MORE
SILICON VALLEY
Silicon Valley was drowning last year—until artificial intelligence changed everything: “In San Francisco, it’s suddenly impossible to escape the AI hysteria. In bars and restaurants, people are conversing about using ChatGPT and whether AI will take their jobs — or take over the world. AI is one of the only fields here still hiring, and firms are paying huge salaries for the expertise. Workers here are retraining to specialize in the field. The new AI gold rush — sparked in large part by the release of OpenAI’s ChatGPT in November — is thanks to generative AI, which uses complex algorithms trained on trillions of words and images from the open internet to produce text, images and audio.”
“Since then, venture capitalists have been throwing money at AI start-ups, investing over $11 billion in May alone, according to data firm PitchBook, an increase of 86 percent over the same month last year. Companies from Moderna to Heinz have mentioned AI initiatives on recent earnings calls.”
“Suvrat Bhooshan, a former AI researcher at Meta and founder and CEO of Gan.ai, a start-up that lets people automatically create customized videos of themselves, just raised $5.25 million from investors including Sequoia Capital and Emergent Ventures.”
“The deal came together fast, with some investors giving him full-fledged term sheets just a week after initial introductions, Bhooshan said.” READ MORE
MANAGEMENT
Jason Fried says businesses should try harder to protect their employees’ time: “Companies spend their employees’ time and attention as if there was an infinite supply of both. As if they cost nothing. Yet employees’ time and attention are among the scarcest resources we have. At 37signals, we see it as our top job to protect our employees’ time and attention. You can’t expect people to do great work if they don’t have a full day’s attention to devote to it. Partial attention is barely attention at all. For example, we don’t have status meetings.”
“We all know these meetings — one person talks for a bit and shares some plans, then the next person does the same thing. They’re a waste of time. Why? While it seems efficient to get everyone together at the same time, it isn’t. It’s costly, too. Eight people in a room for an hour doesn’t cost one hour; it costs eight hours.”
“Instead, we ask people to write updates daily or weekly on Basecamp for others to read when they have a free moment. This saves dozens of hours a week and affords people larger blocks of uninterrupted time.” READ MORE
COMMERCIAL REAL ESTATE
Interest-only loans represent another challenge for landlords and borrowers: “Nearly $1.5 trillion in commercial mortgages are coming due over the next three years, according to data provider Trepp. Many of the commercial landlords on the hook for the loans are vulnerable to default in part because of the way their loans are structured. Unlike most home loans, which get paid down each year, many commercial mortgages are known as interest-only loans. Borrowers make only interest payments during the life of the loan, with the entire principal due at the end.”
“Typically, owners pay off this debt by getting a new loan or selling the building. Now, steeper borrowing costs and lenders’ growing reluctance to refinance these loans are raising the likelihood that many of them won’t be paid back.”
“‘What we’re seeing is the unfortunate collision of the most rapid increase in interest rates in a one-year period and the realities of how people work,’ said Gregg Williams, principal receiver at Trident Pacific, a receivership firm for defaulted commercial mortgages.”
“A rise in defaults could ripple through the commercial real-estate market by forcing distressed sales and pushing down property values. It could also hit regional and community banks that are heavily exposed to the sector, forcing them to write down the value of commercial mortgages on their books and set aside more cash to cover for losses.” READ MORE
The owner of two San Francisco hotels will turn over the keys: “The owner of San Francisco's largest- and fourth-largest hotels said it is planning for ‘the ultimate removal of these hotels from its portfolio’ after ceasing payments on a $725 million loan anchoring both properties this month. Thomas J. Baltimore, CEO of Virginia-based publicly traded REIT Park Hotels & Resorts, called the decision to walk away from the 1,921-room Hilton San Francisco Union Square and the 1,024-room Parc 55 San Francisco ‘very difficult, but necessary,’ in a press release on Monday morning. Among several reasons for the move, the CEO referred to sluggish business travel and ‘weaker-than-expected citywide convention calendar through 2027’ — the two main audiences served by the hotels, centrally located near the Financial District and Moscone Center.”
“The two downtown San Francisco hotels were valued at a combined $1.56 billion in an appraisal at the time of the loan underwriting in 2016, according to a CMBS industry report on the loan for bond investors.”
“Should Park surrender the hotels to the lender on the basis of the $725 million loan, it would represent a 53 percent decline from that appraised value." READ MORE
OBITUARY
Andrew Bellucci, a pizza visionary with a troubled past: “Andrew Bellucci, who in the 1990s became one of the first chefs in New York City to achieve fame for pizza, then lost his job and reputation when an old crime caught up with him, only to return more than two decades later to a city full of pizzaioli inspired by his artisanal, traditionalist approach, died on Wednesday in Queens. He was 59. He collapsed from heart failure while working at his restaurant, Andrew Bellucci’s Pizzeria, in Astoria, said Matthew Katakis, his business partner. He was pronounced dead at a hospital a short time later. Mr. Bellucci’s pizzas first won attention when he worked at Lombardi’s, a revival of a venerable coal-fired pizzeria on Spring Street in Little Italy.”
“Nancy Silverton, Todd English, and other chefs came to taste his pizza, which was a far cry from the foldable, gold-and-orange and mostly interchangeable slices sold across the city. Ms. Silverton was especially impressed by a pie topped with fresh clams, garlic, oregano, and olive oil.”
“One day in 1995, two agents from the Federal Bureau of Investigation walked into Lombardi’s, ordered a pizza and ate it. They left with Mr. Bellucci in handcuffs. The charges against him stemmed from an earlier job as an administrator at a Manhattan law firm, Newman Schlau Fitch & Lane.”
“Mr. Bellucci had embezzled hundreds of thousands of dollars. By that time, he had left the firm and seemed to vanish. Federal investigators suspected that he had fled the country. In fact, he was on Spring Street, stretching dough and giving interviews. Eventually, one of his television appearances tipped off the authorities.” READ MORE
THE 21 HATS PODCAST: DASHBOARD
Getting Past the Fear: This week, Ami Kassar says that in running MultiFunding, which helps businesses figure out their finance needs, he frequently meets business owners who know what they need to do but are reluctant to take that next step. One way to build your confidence, Ami says, is to make sure you really understand what drives your business model, which may require bringing in a fresh set of eyes, perhaps from a fractional CFO. Ami also talks about the current state of lending, his concerns about where the SBA is headed, and why business owner peer groups are so valuable.
You can subscribe to the 21 Hats Podcast wherever you get podcasts.
Thanks for reading, everyone. — Loren
Good stuff; keep doing what you do.