What It Takes to Build a Business

This week's survey on business owners and debt confirmed what most owners already know: If you want to build a business, you probably have to go all in.

Good morning. In today’s edition, we highlight what can happen when a business owner dies without a succession plan, why a restaurant owner has been expanding aggressively throughout the pandemic, and how real estate agents are convincing people to buy properties they’ve never seen.

BUSINESS OWNERS AND DEBT

My takeaway from this week’s 21 Hats survey on debt is that most of you have a healthy relationship with it. For one thing, fewer than 5 percent of you said your credit cards are maxed out. On the contrary, more than 60 percent said their card balances are paid off. Twenty-four percent of you said you have total debt between $100,000 and $250,000. Another 21 percent have total debt of more than $250,000.

Some other highlights: More than half of you have had the experience of being turned down for a bank loan, but only 12 percent of you have resorted to borrowing from an alternative lender like Kabbage or OnDeck Capital. More than 60 percent of you received a PPP loan.

I was impressed to see that more than 60 percent of you own the building that holds your main location. And given the choice, two-thirds of you would opt to buy an existing location rather than opening a second leased location.

Most significantly, the results confirmed what I believe far too few people understand, which is that if you want to build a business, you probably have to go all in. Eighty-three percent of our responders have signed personally for a bank loan -- many, if not most, risking the homes they live in. I’d like to think we as a society could come up with a better way to finance business creation, but for now, it would be better if the population at large understood that this is what it takes. Let’s see if we can spread the word. (You can still take the survey.)

THE 21 HATS CONVERSATION

Could you be hit with a surprise tax bill if you took a PPP loan? Join me for a conversation about managing your PPP loan on Tuesday at 3 ET, and bring all of your questions about when to apply for forgiveness, how much of your loan is likely to be forgiven, and whether expenses paid with PPP money will be tax deductible. My guests will be Lou Mosca, chief operating officer of management consulting firm American Management Services, and Chris McKee, managing partner of accounting firm Venturity Financial Partners.

Register for the Conversation

SUCCESSION

Here’s what it can look like when a business owner dies without a succession plan: “I work for a very small luxury travel agency that was already suffering due to the covid-19 pandemic. The owner of the company recently passed away, and we are heartbroken and completely freaked out. No one has been named next in command, and his family wants nothing to do with the business. We don’t even know if we’ll be paid out from the accounts. Also, quite a few trips are still booked in the coming months for clients who have zero idea what’s going on, and we don’t know what we’re allowed to tell them. We want to help ensure our travelers still get to go on their trips, but of course we can’t work for free and will eventually need to find other jobs to pay our bills.” READ MORE

MARKETING

It was 10 years ago that Groupon turned down a $6 billion buyout offer from Google. Instead, the daily deal company -- whose business model consisted largely of preying on the desperation of struggling businesses -- went public: “This year, in April, Groupon said it would lay off or furlough about 2,800 employees, representing 44 percent of its workforce.”

  • “In May, the company put up for sublease 150,000 square feet of space at its [Chicago] headquarters at 600 W. Chicago Ave. For the first nine months of 2020, Groupon lost more than $300 million, compared with $91 million in the year-ago period.”

  • “On Wednesday, shares closed at $31.40, giving it a market cap of $905 million.” READ MORE

In New York City, developers are hiring influencers to sell homes without showings: “Charles Mazalatis, founder of Maz Group NY, said that when the coronavirus arrived, and New York State shut down showings, people were reluctant to spend hundreds of thousands of dollars on an apartment they couldn’t go see in person. Enter Instagram. ‘It’s all about creating a vibe,’ said Christine Blackburn, a New York-based sales director with Compass, of the growing use of social media to move properties.”

  • “Blackburn, who represents a building in the fast-gentrifying Brooklyn neighborhood of Crown Heights, partnered with three Instagram influencers to curate model homes with their unique styles.”  

  • “One of them—Summer Rayne Oakes—is known for her houseplant tips. She transformed one of the building’s 447-square-foot studios into a ‘boho-chic’ pad, using her green thumb for inspiration. The listing, going for $499,000, was geared to a younger crowd that is still cost-conscious.”

  • “She shared Instagram posts with her 213,000 followers and filmed a YouTube video that racked up over 474,000 views. The building’s development companies, CIM Group and LIVWRK, declined to disclose how much it paid for its influencer partnerships, or how many units have been sold since Oakes posted her work.” READ MORE

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OPPORTUNITIES

A restauranteur says vegan food is the key to post-Covid success: “As the restaurant death toll soars across the U.S.— nearly one in six U.S. restaurants have closed since the start of the pandemic— Matthew Kenney sees opportunity to grow. The Los Angeles-based chef has opened five vegetarian restaurants since September in California, New York, and Buenos Aires, with plans to add at least eight others to his international roster of more than 25 existing Matthew Kenney Cuisine establishments. The locations are spread around the globe, from Dubai to Los Cabos, Mexico, featuring concepts like the pizza-focused Double Zero and Sestina, which specializes in plant-based Italian.”

  • “Two forces are driving Kenney’s optimism: Rising demand for plant-based food—even McDonald’s is testing the McPlant, while the meat-free market is expected to hit $74.2 billion by 2027—and vacancies creating real estate deals.” READ MORE

Obé Fitness will let subscribers exercise remotely with up to seven friends at once: “Groups can follow along with recorded or live classes, customizing the experiences with tools including volume control for friends and instructors. Participants can also talk with each other before and after sessions to mimic in-studio experiences. People used the feature in surprising ways during beta testing, such as staying on for cocktails, said Ashley Mills, co-founder and co-chief executive of Our Body Electric, which operates as Obé.”

  • “The Obé workout parties arrive as the fitness industry approaches its usual busy season after New Year’s, when people try to follow up on resolutions around health and nutrition, as well as a possible increase in home workouts as coronavirus cases surge and states consider new lockdown orders.”

  • “Obé partly competes through price, with a $199 annual membership and classes that don’t require costly, internet-enabled hardware.” READ MORE

READER FEEDBACK

Todd Hawkins, of Workforce Development, on yesterday’s item about cities making the seemingly perverse decision to build more convention space even as existing centers sit vacant: “One possible reason for this perversion: Mainly, it is someone else's money.  Most governments don't live in the real world of budgets where income vs expenses balance. They have the ability to raise taxes at will, primarily property tax, and if an entity or person refuses to pay they take the property by force. This ability gives cities very little reason to obey the laws of supply and demand.”

OBITUARY

Frank Carney, co-founder of Pizza Hut: “Pizza wasn’t a big part of the local diet in Wichita, Kan., in 1958. Frank Carney had tried it only once. Still, he was open to suggestions. A beer joint had gone bust, and the owners of the building suggested to the 19-year-old Frank Carney and his older brother, Dan, that they should rent it and maybe try making pizza. The Shakey’s chain had started four years earlier and was creating buzz. The Carney brothers borrowed $600 from their mother and opened the first Pizza Hut, named because their boxy little building was hut-like.”

  • “By 1977, the Carneys saw that Pizza Hut needed more capital. They sold the business to PepsiCo for about $300 million. Frank Carney used his proceeds to invest in other businesses, including restaurants, real estate and energy. ‘I screwed up almost every way you can,’ he told the Houston Chronicle in 1997.”

  • “When PepsiCo moved the Pizza Hut headquarters out of Wichita, he was just angry enough to become a major franchisee of the rival Papa John’s pizza chain.”

  • “He appeared in a national TV ad for Papa John’s. ‘Sorry, guys,’ he said in the ad. ‘I found a better pizza.’” READ MORE

THE 21 HATS PODCAST

Episode 41: She Was a Hiring Goddess: Back in 1996, Jay Goltz had no real hiring process -- and the results to prove it. “My hiring success rate,” Jay tells us, “was probably, I don't know, 30 or 40 percent, which isn't much better than whoever walks in you hire.” And then he asked Ivy Garfield to take over his hiring. As Jay explains, Ivy brought an instinct, an understanding of how to assess people. “She profoundly changed my business,” he tells us. “She was here six years. Most of my key people she hired. They’re with me 25 years later.” Jay talks about the secret to Ivy’s success and why entrepreneurs like him tend to be terrible at hiring.

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See you next week!

--Loren Feldman