What We Learned in 2024
This is a special end-of-year review of the most important stories of the year for business owners. The review is open to all subscribers, paid and non-paid.
Good morning!
Here at the 21 Hats Morning Report, we scour the web daily, looking for the stories, posts, podcasts, videos, and tweets that matter most to those building businesses. 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. This year’s highlights include writings about why your business needs an AI policy, what happens when AI kills SEO, what will be lost if TikTok is banned, how the new weight-loss drugs are changing business models, whether core values have any real value, why the labor-efficiency ratio became one owner’s North Star, what the looming tariffs and deportations could mean, and how several entrepreneurs made lasting impacts.
THE 21 HATS PODCAST
This Is What It Takes to Build a Business, Vol. 3, Part 2: This week, we take another look back at the conversations we had over the past year, highlighting some of our happiest, smartest, and most insightful exchanges. We discuss whose advice is worth taking, whether any business can be remarkable, which businesses should try EOS, why family businesses can be so vexing, what to do when big businesses refuse to pay small businesses, the challenges of pricing services, the backlash against diversity, and finally the remarkably moving story of the moment that propelled one entrepreneur first to first get fired and then to launch a remanufacturing business that would hit $60 million in revenue in less than five years.
You can subscribe to the 21 Hats Podcast wherever you get podcasts.
ARTIFICIAL INTELLIGENCE
Coursera has created an AI Academy to help both employers and employees: “Most company leaders understand that artificial intelligence will soon play a vital role in their business if it hasn't already. But first they have to educate their employees — and themselves — on how best to use it. Over 50 percent of employees believe that a comprehensive AI skill set will be essential for their role in the future, according to a recent survey from HR consulting firm Randstad. And yet, only one in 10 have been offered any AI training in the last year — an issue online course provider Coursera is attempting to address with its new Generative AI Academy, designed specifically to equip executives and employees with the skills needed to successfully navigate an AI-driven workplace.”
“Generative AI Academy includes five core educational programs from top AI research universities and companies such as Microsoft, Stanford Online, Vanderbilt, DeepLearning.AI, Google Cloud, and AWS. The courses cover a range of topics like ethics and risk policy as well as more tangential topics like prompt engineering.”
“Most notably, Coursera also included a course that targets company leaders and tailors the subject matter to basic knowledge and implementation strategies they need to grasp before imparting it onto their workforce.” READ MORE
AI is speeding the startup process: “Sean Ammirati has been teaching a class on entrepreneurship for more than a decade. A professor at Carnegie Mellon University, Mr. Ammirati has groups of mostly graduate students start businesses from scratch over the course of the spring semester. Some of the start-ups that his 49 students created this year were classic examples of the form: a dating app for couples in long-distance relationships, a personalized fitness app. But Mr. Ammirati also noticed something unusual.”
“‘I have a pretty good sense how fast the progress that students should make in a semester should be,’ he said. ‘In 14 years, I’ve never seen students make the kind of progress that they made this year.’”
“And he knew exactly why that was the case. For the first time, Mr. Ammirati had encouraged his students to use generative artificial intelligence as part of their process — ‘think of generative AI as your co-founder,’ he recalled telling them.”
“The students began sharing their ideas for use cases on a dedicated Slack channel. They used generative AI tools such ChatGPT, GitHub Copilot, and FlowiseAI to help them with tasks including marketing, coding, product development, and recruitment of early customers.” READ MORE
Lance Tyson says AI is driving sales: “In the realm of sales, every second counts. The faster you can identify leads, understand their needs, and deliver appropriate solutions, the more likely you are to close deals and outpace competitors. AI accelerates this process exponentially. Leveraging machine learning and advanced data analytics, AI sifts through vast amounts of data at breakneck speed to identify patterns, predict behaviors, and personalize interactions in ways that were once only imaginable in science fiction. At my company, we’ve leveraged AI tools to analyze customer data in real time, which has equipped our sales team with the insights needed to target prospects with surgical accuracy. These tools have not only increased our efficiency, but also enhanced the effectiveness of each interaction, ultimately driving up our conversion rates and revenues.”
“The one-size-fits-all approach to sales pitches is now obsolete, replaced by hyper-personalized communication strategies powered by AI. In this new era, AI functions as the undertaker of generic sales pitches, bringing forth a strategy so tailored it feels as though it’s crafted for an audience of one.”
“We initially used AI to identify upsell and cross-sell opportunities within our existing customer base. The AI tools analyzed purchasing patterns and customer feedback to predict future buying behaviors, enabling our sales team to proactively offer tailored solutions. The results were remarkable—a 25-percent increase in customer engagement and a 15-percent rise in sales in just the first quarter after implementation.”
“A significant portion of sales-related activities traditionally involves mundane, time-consuming tasks such as administrative duties, data entry, and lead qualification. AI revolutionizes this aspect by automating these tasks with ruthless efficiency. This automation allows the sales force to dedicate more time to engaging with clients and closing deals.” READ MORE
No matter how you use AI, Gene Marks says you should implement an AI policy: “You need to take steps to reign in the use of AI in your company. Your concern — at least for now — isn’t about violating any of the few AI laws that exist. Your concern is that AI technology in your company is misused by your employees — willingly or not — and creates potential liabilities that could challenge your business. For example, what if a worker, independently and with the best of intentions, decides to try an AI app that promises to automate their tasks but instead skips over important steps in your quality process? Or uses data incorrectly by sending out unauthorized emails or indiscriminately approving a sales or purchase order? Worse yet, what if an untested AI application deletes your data or exposes it to the wrong people?”
“So, where to get started? Yeah, you guessed it: AI. Go to ChatGPT, Claude, CoPilot, Gemini, Grok or any other AI chatbot and prompt it to create an AI policy. Try this prompt, which I ‘borrowed’ from ChatGPT: ‘Can you create an AI policy for my business? We are a [industry/type of business] that uses AI for [specific applications or purposes]. Our priorities are [e.g., ethics, compliance, data privacy, transparency, etc.]. Please include [specific elements you’d like, e.g., risk management, accountability, communication guidelines, etc.]. Make it suitable for [audience, e.g., internal teams, external stakeholders, customers].’”
“A good AI policy just answers these ... questions: What core AI application features are approved for use in the company? I stress singling out ‘features’ because most accounting, CRM, HR, and other applications are already building AI capabilities in their products.”
“What non-core AI applications are allowed? There are countless apps and tools that leverage generative AI to create art and images, do research, review contracts, and wordsmith correspondence. They’re easy to find and tempting to use. But none of these should be used unless they’ve been vetted.”
“What departments or teams are allowed to use AI? Is this limited to your marketing group? Your finance team? Your IT group? Ultimately AI will be used throughout your organization. But for now your policy should address only those that are allowed to use it.” READ MORE
MARKETING
Is AI killing Google search? And if so, what does that mean for SEO and digital marketing? “The company’s core business is under siege. People are increasingly getting answers from artificial intelligence. Younger generations are using other platforms to gather information. And the quality of the results delivered by its search engine is deteriorating as the web is flooded with AI-generated content. Taken together, these forces could lead to long-term decline in Google search traffic, and the outsize profits generated from it, which prop up its parent company Alphabet’s money-losing bets on things like its Waymo self-driving unit.”
“The first danger facing Google is clear and present: When people want to search for information or go shopping on the internet, they are shifting to Google’s competitors, and advertising dollars are following them. In 2025, eMarketer projects Google’s share of the U.S. search-advertising market will fall below 50 percent for the first time since the company began tracking it.”
“This shift is due largely to users’ bypassing Google to start their search for goods on Amazon. It’s handing Amazon billions in advertiser dollars. Meanwhile, TikTok has less than 4 percent of U.S. digital ad revenue, but significant potential to expand its share of the pie.”
“The second threat is the rise of ‘answer engines’ like Perplexity which, well, do what they say on the tin. OpenAI has added internet search to ChatGPT, Meta Platforms is exploring building its own search engine, and even AI chatbots that can’t search the internet are proving increasingly capable at addressing many questions.” READ MORE
Shawn Busse thinks a lot of the time and energy that business owners put into marketing is misguided: “In marketing, there are four P's: Product (or service), Price, Placement, Promotion. Here's the thing: Most all of marketing in the small business space is fixated on: Promotion. This looks like running pay-per-click ads, crafting hundreds of blog posts for SEO, social media firehosing. While all of these tactics are valid (or were, at one time), they often suffer from tremendous friction and unnecessary expense.”
“What if the thing you're paying to promote is priced in a confusing way? Or what if your offering is great, but the way it's messaged fails to capture the product's awesomeness? What if the market isn't ready to buy because you're innovative and need to educate potential customers?”
“You see where I'm headed: Friction. Expense. Spending more to get less. Every year, business owners throw billions of dollars at digital advertising and marketing. They do this unknowingly, of course, because the marketing ecosystem is wired and biased towards: PROMOTION.”
“So, what to do?” READ MORE
Business owners are protesting the possible banning of TikTok: “‘Banning TikTok would shut down a lot of small businesses, including mine,’ said Brandon Hurst, 30, a Los Angeles plant shop owner who credits the app with boosting lackluster sales. ‘These representatives and senators don’t understand that what they’re doing won’t just harm people they call ‘content creators.’ It would hurt small businesses.’ Dozens of TikTok supporters gathered outside the Capitol on Wednesday to oppose the measure, which passed the House with overwhelming support but faces an uncertain fate in the Senate.”
“More than 7 million American businesses market or sell their products through TikTok, according to the company. According to a study issued Wednesday by Oxford Economics, a financial consultancy, TikTok drove $14.7 billion in revenue for small-business owners last year and contributed $24.2 billion to U.S. gross domestic product.”
“Even as TikTok has become increasingly important economically, it has drawn fire from policymakers in both parties, who have expressed concern about the content being served to users of the app and about its parent company’s ties to China.”
“Proponents of the House measure say they have no intention of banning the app. Instead, the measure would require TikTok, which is owned by China-based ByteDance, to be sold to a U.S.-based company within 180 days. If ByteDance refused to sell, U.S.-based app stores and web-hosting services would be prohibited from providing TikTok to the public.” READ MORE
LinkedIn is emphasizing TikTok-style videos: “Since the spring, the Microsoft-owned platform has been gradually rolling out a TikTok-style vertical video feed that features career advice, industry news, and other creator content. A LinkedIn spokesperson said ‘most’ users now have access to it. Videos can also appear in the app's main feed. Meghana Dhar, a creator with 15,000 LinkedIn followers, said her LinkedIn ‘engagement has just exploded’ since she started posting videos. She added that LinkedIn moving toward video ‘indicates that they're taking creators really seriously.’”
“Dhar said, for example, that a recent text post she shared on LinkedIn got about 10,000 impressions, while a video of her talking to the camera hit over 2 million impressions. Marketing strategist Caroline Giegerich found that her LinkedIn video posts reached three times as many people as her text posts did. A LinkedIn spokesperson said video posts — including videos shared from individual profiles and pages — get 1.4 times as much engagement on average as other posts on LinkedIn.”
“While the concept of LinkedIn video might feel strange to some users, it could be a key for the platform to cement itself as a core platform for creators, unlock more ad revenue, and keep people checking their feeds regularly. The top platforms for creators, such as YouTube, TikTok, and Instagram, are all heavily focused on video.” READ MORE
In San Francisco, TikTok has become the place to find an apartment: “Renting a home in San Francisco is, to put it gently, a nightmare, littered with Craigslist scams, dozens of tenants competing for places and rushed tours from indifferent property managers. Adriana Popescu, a 20-year-old student at the University of San Francisco, avoided that by going straight to TikTok. In between the never-ending stream of mini-videos featuring people getting down to ‘Get Down on It,’ she started seeing content from The Apartment Plug SF—a TikTok account launched by University of San Francisco MBA student Daisy Hernandez that promotes apartments for rent in the city. In less than two years, The Apartment Plug has grown to more than 50,000 followers.”
“She declined to provide her exact fee, but says that she gets paid for posting an apartment on her feed (much like sponsored content), as well as for doing marketing and showings until the units are rented. She is also paid by TikTok via its creator program.”
“Within the past year, Hernandez said she’s secured over a million dollars in leases for her landlord clientele. During her two-year-long stint on TikTok, she’s rented over 100 homes in San Francisco.”
“[Dave] Chesnosky, 52, initially thought the TikTok user base was too young for his typical clientele. He was convinced to start his account by his wife, an avid user of the platform who also handles the photo and video for his brokerage business.”
“His opinion shifted when he posted an apartment video about a $4,000-a-month Russian Hill rental that got 80,000 views and more than 15 rental inquiries.” READ MORE
PRICING
Lots of restaurants are trying dynamic pricing: “If you are hungry for barbecue on a Saturday night this month, a delivery of a pulled-pork sandwich from Cali BBQ could cost you around $18. Or you could hold off a few days and order the same sandwich delivered on a weekday afternoon for around $12. Restaurants like San Diego-based Cali BBQ are experimenting with a form of the dynamic pricing long used by airlines, hotels, and ride-hailing services.”
“Shawn Walchef, Cali BBQ’s owner, said that variable pricing attached online to the pulled-pork sandwich boosted the four-unit chain’s $30,000 in monthly delivery sales by $1,500 since the company began testing it in early 2023. ‘That’s very meaningful for a small business,’ Walchef said about the sales boost. ‘I recommend it to every restaurant owner.’”
“Drew Patterson, co-founder of restaurant dynamic pricing provider Juicer, said restaurants need to reference ‘happy hour’ and other known promotions when explaining variable pricing to customers. ‘You need to make it clear that prices go up and they go down,’ said Patterson. Dozens of restaurant brands use Juicer’s technology to change their prices based on demand trends, with an average swing of up to 15 percent, Patterson said.”
“Gene and Georgetti, a historic Chicago steakhouse where Frank Sinatra once regularly dined, in late 2022 implemented dynamic pricing on two booths frequented by celebrity customers. Diners typically pay a $20 fee when they book the booths at busy hours, helping counterbalance the restaurant’s rising expenses, managing partner Michelle Durpetti said.” READ MORE
Shifting to annual passes changed everything for ski resorts: “Vail Resorts first released the Epic Pass in 2008. Skiers could pay $579 and visit Vail, Breckenridge, Beaver Creek, Heavenly, and Keystone as often as they wanted for the upcoming ski season. It wasn’t the first season pass — Colorado’s Winter Park offered a heavily discounted pass in the late 1990s, starting the trend. But this pass granted entry to five resorts, which at the time charged up to $90 for a single-day ticket. Vail Resorts sold 59,100 passes the first year, totaling $32.5 million. That number increased to 650,000 in 2016, 1.2 million in 2019, and 2.4 million in 2023 for ~$900 million in sales. The cost for an Epic Pass for the 2023-24 season started at $909 last spring (rising as ski season approached) and offered buyers unlimited admission to every Vail Resorts ski area.”
“During an earnings call in December 2023, Vail Resorts CEO Kirsten Lynch said passes made up ~73 percent of the company’s overall lift-ticket revenue, giving the business more stability. The upfront money is a hedge for seasons with lower snowfall and bad weather.”
“Skiers, meanwhile, have seized on the discount and started skiing more frequently. Ski weekends in many parts of Colorado have gotten longer, says Childers, with people arriving a day earlier or staying a day longer.”
“Vail Mountain kicked off the new year by setting a record. For the first week of January, a single-day lift ticket purchased on-site cost $299, the highest amount ever charged to ski the iconic resort, roughly 100 miles outside Denver.” READ MORE
THE ENTREPRENEURIAL LIFE
Kurt Wilkin, a friend of 21 Hats, writes about the overall impact of his business reversals: “In March 2020, the world changed. Yes, we all know what happened, but bear with me for a minute. At the time, I was still the CEO of HireBetter—a company devoted to helping good people build great companies by helping them attract, hire, and retain a kick-ass team. Let’s just say that in Q2 of 2020, there wasn’t a lot of growing or hiring going on. In fact, most companies were more in need of what we joke is our alter ego company, FireBetter! While most of the world was still in shock, I immediately thought about what I could do to help. Distilleries paused liquor production and produced hand sanitizer, clothing companies made face masks, and so on. If HireBetter couldn’t help people through our traditional service offerings, what could we do? How could I help? Most of you know that I dove headlong into creating CEO Forums to help leaders deal with the chaos and the unknown—survive the pandemic and thrive on the other side.”
“Things on the HireBetter front were exacerbated by a large bet we made in Q4 of 2022. We did something we’d been wanting to do for years. We acquired a company to add to our service offerings and added a number of talented, passionate people to the HireBetter team. But the acquisition didn’t go as smoothly as we’d hoped. (They never do!) In hindsight, buying another recruiting firm right before a downturn might not have been the best move.”
“With everything going on, I basically lost track of who I was. I found that I became more self-centered and self-absorbed. When I sat down with clients or candidates—or even friends—I found myself thinking, How can this person help me? It seemed like I was no longer interested in challenging and inspiring others. I was looking for someone to solve my problems.”
“The good news is that I had an epiphany when catching up with a longtime friend. He and I have a unique relationship, built partially on our mutual love for sarcasm. We’re badass smartasses. So when I texted a few months back to invite him to a happy hour, I threw in a sarcastic, ‘And thanks for checking on me!’ I was floored when he responded back that he was sorry, and that he had been going through a really tough patch lately.”
“While HireBetter certainly isn’t out of the woods yet, we’re turning the corner. There’s a ton of hard work that went into that, but I believe a big part of it has been refocusing on our purpose—both individually and collectively.” READ MORE
Brent Beshore, who runs Permanent Equity, shares his thoughts on what it takes to build a business: “I've had the privilege of peeking behind the curtain at 10,000-plus businesses. Some observations: All businesses are loosely functioning disasters. Operating a small business feels like a daily knife fight where you get out of bed, try not to get stabbed, get back in bed, and do it all over again. Small businesses don't stay small on purpose. Most companies don't make much money.”
“Fast growth is counterintuitively more perilous than declining revenue and can quickly destroy a company.”
“Culture is nothing more than what you reward and punish, not what you put in your mission, vision, values statement.”
“Most employees couldn't tell you why they do what they do, or how it contributes to the success of the business.” READ MORE
For many entrepreneurs, romance is a challenge: “It’s no surprise that entrepreneurs—in the hustle of meeting payroll and growing their business—find that personal life takes a backseat from time to time. However, when romantic relationships can’t endure, business owners face professional and financial setbacks in addition to emotional ones, according to a new survey from Clarify Capital, which provides loans to small business owners. For business owners experiencing divorce, 57 percent say their company has taken a financial hit, and 70 percent couldn’t focus on their work the same way.”
“Three in five reported decreased mental well-being and motivation at work, and 35 percent of owners had to rely on outside help, such as family and friends, to keep their business afloat. And during divorce proceedings, owners faced an average $4,000-a-month revenue decline.”
“It’s clear from the survey of 1,000 Americans, who are either business owners or have dated them, that entrepreneurs are struggling to maintain healthy relationships. Nearly half of entrepreneurs surveyed said they have a ‘poor romantic life.’”
“Due to stacked duties and late-night meetings, business owners say the primary reason for a poor love life is a lack of quality time with their partner. At the same time, they are 64 percent more likely to prioritize their business successes over their romantic partners.” READ MORE
Omar Aceves found unusual inspiration to start a business: “What would you do if a doctor said you were about to die? Faced with a devastating cancer diagnosis, Omar Aceves quit his cleaning business and opened Dos Tacos. Despite being open for less than a month, this new Katy [Texas] taco place often has a line of customers outside, driven by word of mouth and a strategic social media post.”
“Owner and chef Aceves, 38, said an oncologist told him three years ago that he was dying of throat cancer and to start getting his affairs in order. The father of two found the terrible news gave him newfound clarity. ‘When somebody tells you that you have no future, you’re not afraid anymore,’ said Aceves. ‘I thought, on my last day, I don’t want to think I didn’t do what I wanted to do — which is show the world what is a real street taco.’”
“In addition to serving authentic street tacos, the way they’re made in Aceves’ native Guanajuato, Mexico, Aceves and his wife, Cindy Rivera, also serve a variety of vegetarian and vegan tacos. Crafted from recipes they’d perfected themselves, these dishes reflect Aceves' commitment to his battle against cancer, which included a decision to adopt a fully vegetarian diet.”
“Aceves is not out of the woods yet, he said; he’s still battling cancer and going for regular check-ups. However, he said he finds immense joy in the work he’s doing at Dos Tacos and is grateful for the support and positive feedback from the community. ‘I do believe in the law of attraction,’ Aceves said. ‘If you dream it, feel it, you taste it, you smell it. Close your eyes and see yourself doing it. It will happen.’” READ MORE
OPPORTUNITIES
The new weight-loss drugs are revamping business models throughout big swaths of the economy: “So far, the powerful new anti-diabetes and anti-obesity drugs — a fast-growing family that also includes Ozempic, Wegovy, Saxenda, Zepbound and dozens more in the works — have been expensive and difficult to obtain because of widespread shortages. But as availability increases and costs come down, GLP-1 medications threaten to upend the long-standing natural order for industries across the board. Executives and investors are nervously wondering whether droves of slimmed-down users will soon ditch their dieticians, skip the gym, order less at restaurants, and throw out their favorite snack brands.”
“Many companies, acknowledging that the blockbuster class of drugs are a medical breakthrough and not just a fad, are swiftly repositioning themselves with new products and services in a bid to persuade customers that they still have plenty to offer in the booming age of Ozempic.”
“‘We had to up our game,’ said Dr. Gary Foster, chief scientific officer at WeightWatchers. ‘A lot of people said, ‘Was it an existential crisis for you?’ Absolutely not. When science evolves, we evolve. What we have to do as a brand is think about how we incorporate that.’”
“Apparel retailers say they’ve noticed customers buying smaller sizes. Plastic surgeons are reporting a rise in facelifts and other procedures to correct so-called Ozempic face, the sagging skin that often accompanies rapid weight loss. In February, Lars Fruergaard Jorgensen, the chief executive of Ozempic maker Novo Nordisk, said food company leaders had called him because they were ‘scared.’”
“Gyms, too, are pivoting to retain clients who are now taking the drugs — and to attract people who might have felt too self-conscious to sign up for a membership before. Although it might seem counterintuitive, ‘I think [Ozempic] brings new people in,’ said Siegel, the analyst who tracks big-box fitness chains.” READ MORE
Sober bars are becoming a thing: “Every Friday, when Chris Marshall opens his bar, he gets the same customer request: Alcohol, please. And every time someone asks for a vodka tonic or another familiar well drink, he has to gently remind them that his bar, Sans Bar, serves no alcohol. ‘I can definitely help you with the tonic, not so much the vodka,’ he said. ... At Sans Bar in Austin, Texas, the cocktails aren’t the star. The customers are. ‘We make it about the experience and connection, not the drinks,’ he said. ‘I mean, the drinks are amazing. But so much of what it means to be a bar is to be a place where people meet.’”
“Marshall is a member of a small class of sober bar owners who want to upend the idea that bars are exclusively places where alcohol is served. He and other sober bar impresarios believe bars should be community hubs where you can have fun without imbibing anything alcoholic.”
“And as the non-alcoholic beverage market steadily grows, so have sober bars. They operate in New York and Los Angeles, in Orlando and Sacramento, Atlanta and Omaha. And they’re steadily growing their base of customers, including those who still drink but are exploring sobriety and people in recovery from substance use, by redefining what a bar can be.” READ MORE
Suddenly, there are a lot more car washes: “From the Snow Belt to the Sunbelt, companies are scrambling to add locations and grab a piece of a $14 billion-plus industry. With 60,000 locations across the U.S., the sector has been expanding at roughly 5 percent annually, with some forecasts predicting the market to double by 2030. More car washes were built in the last decade than all the preceding years combined. ‘I don’t want to be too bullish and say there’s no way this could fail,’ said Jeffrey Cicurel, director of capital markets at real estate brokerage JLL. ‘But Americans are moving to the suburbs, and Americans want quality retail, and car washes come with that.’”
“The car wash boom reflects a broader shift away from do-it-yourself car care habits. Like changing your own oil, soaping up the family auto in the driveway has increasingly become an artifact of decades past: The number of washes done at professional facilities jumped from 50 percent in 1996 to 79 percent in 2021, according to the International Car Wash Association.”
“‘We think this is the coffee market in the early ’90s, when Starbucks got going,’ said Ian Rickwood, CEO and founder of Henley Investment Management, an international investment and fund management firm that has its eyes set on U.S. car washes. ‘One came to town, and people said, $5 for a coffee, surely nobody will buy more than one cup a day. And of course, another one opened and another one opened and the category expanded because people began to change their habits.’”
“But the industry’s biggest recent innovation involves its business model, which has increasingly focused on membership and recurring revenue. Mister Car Wash, a chain picked up by private equity firm Leonard Green & Partners that has gone public and now has more than 400 U.S. locations, was an early developer of subscription offerings. Users pay a monthly fee for unlimited washes, with plans starting around $20 a month before adding services like waxes and wheel polishes. (A basic a-la-carte wash runs for about $10 each.)”
“‘What other industry can offer locations with up to 80 percent subscription-based revenue and an earnings before interest, taxes, depreciation and amortization margin of 50 percent? Amazon can’t ship a car wash,’ Rickwood said. ‘And the growth potential is massive.’” READ MORE
MANAGEMENT
Michael Girdley says core values are lame—and offers an alternative: “Communication. Respect. Integrity. Excellence. Great concepts, but do your eyes glaze over? Mine do. This could be any business in America. But guess what? Those ‘Core Values’ belong to Enron. You know: manipulated financial statements, insider trading, a cutthroat firing policy—even suspending their ‘code of ethics’ so leadership could do shady stuff. So what happened to Integrity?”
“Here are three big problems with core values: They’re not actionable. Of course integrity is important. So what? They’re not specific. Is excellence working a 60-hour week or getting the job done well? They’re not complete. You can’t proscribe an entire culture with three to five buzzwords. Life’s too complicated.”
“A few years ago, a CEO friend of mine named Andrew was frustrated with his company’s values. So he introduced a set of 18 core behaviors. Using behaviors fixes the three big problems with the classic Core Value approach. They’re specific. They’re actionable. And with 18 behaviors listed, they’re closer to a complete picture of how the team operates.” For example:
“Be a fanatic about response time: Our customers expect a response to their questions in minutes, not hours. Rapid response is one of the easiest and best ways to stand out from the crowd.”
“Be systems- and process-oriented: The best companies are built on foundations of highly successful, continual processes. Look to create processes for every aspect of your work, and turn those processes into habits to achieve consistent results.” READ MORE
On the 21 Hats Slack channel, Josh Patrick, of The Sustainable Business, took exception with the Michael Girdley column highlighted above: “Core values are a great tool when used properly. I’ve used them in disciplinary conversations and as examples of what we should be doing in our jobs. When used regularly, core values will lead your company to places where your competition won’t or can’t go.”
Brandon Day of Daycos: “Agree 100 percent. I was annoyed when I read Girdley's newsletter this weekend, and was annoyed again when I saw it in the Morning Report. It should have been labeled ‘The Problem with (Generic and Poorly Implemented) Core Values.’ As with you, I have found Core Values can be incredibly valuable if used right.”
Josh Patrick: “I have no patience for people who dump on systems and say they don’t work when their implementation is the problem. I’ve seen this with masterminds, customer advisory boards, and values. There are best practices for each, and they’re not hard to find.”
Shawn Busse of Kinesis: “Glad this annoyed others. I wrote a whole chapter in my book about this, and Josh is spot on about the problems. My main point (problem) with all these behaviors is 1) no human being can remember them and 2) you’re treating adults like children.”
Here’s how Mike Wolfe of Delgado Stone Distributors realized he needed to have more meetings: “I was not going to be labeled a ‘micromanager’ or waste people’s time. If the leadership team was performing, I decided not to waste their time, or mine, with meetings. Instead, I put all this energy towards the areas that needed the most help, and the ‘A Players’ would be able to handle things on their own. In all fairness to my coach, I was warned it wouldn’t work. For whatever reason, it didn’t resonate with me.”
“If I’m not meeting with our A Players, who am I meeting with? Answer: Non A-Players. I’m investing my time with team members that are underperforming and ignoring the key players that are driving the company. It worked for a little while.”
“Once I realized my mistake I acted quickly to make a change: consistent meetings (we call them huddles) with A Players. These now take place once a week with the following agenda: How are you doing? Did anything happen last week we need to discuss? What are you working on this week? How can I help?
“There are weeks when this meeting takes 10-15 minutes and weeks where it’s a 30-45 meeting. It’s not about me, it’s about them.” READ MORE
FINANCIAL MANAGEMENT
Alan Pentz credits his mentor, Greg Crabtree, with saving his business: “I found Greg when I was at one of my lowest points in business. We were losing money and piling up debt on our line of credit. As a result, I wasn’t sleeping well and had plenty of time to cruise YouTube in search of answers. Late one night, I found one of Greg’s talks that focused on the importance of labor to your business. You might not think this is a stunning insight but for me it was as if the heavens had opened and a ray of truth illuminated the dark night.”
“What I realized was that we were floating people we had no work for and the sooner we confronted that reality, the better it would be for us. Of course, we sort of knew that already, but what Greg made clear is that the numbers were letting us lie to ourselves.”
“Go look at your own profit and loss statement. You’ll see labor spread across multiple accounts. That P&L was developed to pay your taxes, not help you run your business. If a number is important it shouldn’t require you to hunt and peck to find its components and add them all up. It should be staring you in the face every day. That was Greg’s fundamental insight.”
“Labor is almost every company’s biggest investment/expense so you should focus on managing it and using the right metrics to measure it. That’s where labor efficiency comes in. It’s a North Star metric for almost any business. Greg calls his metric the Labor Efficiency Ratio.” READ MORE
Ami Kassar explains when it’s time to use a line of credit: “I understand that many business owners are wary of taking on debt. But I also know that having a line of credit can add substantially to the financial stability and security of a business. And it’s not just for use in an emergency. In fact, some businesses would have a very hard time operating without a line of credit. I have often said that a line of credit should be part of the furniture in certain businesses, a routine part of the business’s operating system.”
“Some businesses have seasonality issues. These businesses know they will have down months and up months, depending on the cycles in their industry. One example is a retail business, where you can predict that a large percentage of your revenue will come around the holiday season.”
“The second scenario includes businesses that have to hold significant amounts of inventory and that accumulate accounts receivable. Inventory-heavy businesses need to have goods on the shelf when customers come into the door and order, and they often have to pay their suppliers before the goods are sold. Other businesses must wait for customers to pay after delivering their product or service. In these instances, as well, I believe using a line of credit is appropriate.”
“As a reminder, a good rule of thumb for lines of credit is 10 percent of your top-line sales or 85 percent of your accounts receivable and inventory.” READ MORE
On the other hand, Ami has also been seeing lots of businesses that got used to living on Covid cash and are now struggling: “Last week, I spoke with the owner of a daycare center who is starting to feel a cash pinch. Why? Many of the Covid childcare credits that her customers received have ended. As a result, her sales are slowing. I also spoke with a marketing and communications agency for educational organizations (school districts, nonprofits, foundations). Its challenge is that post-Covid, now that the additional federal funding that educational organizations received has dried up, budgets have shrunk substantially, and profitability has become a challenge.”
“I spoke with the owners of an e-commerce business last week that is running out of cash. Among other issues, their EIDL payments are due, and it needs to find the money to pay them. When I asked them how they used their $500,000 EIDL loan, they didn’t have a very good answer.”
“It seems these owners did not squander their EIDL on anything criminal, but they got used to a new comfort zone and used the money to pay salaries and other expenses. They got used to having the extra cash, but it didn’t help them grow the business. Now that the money is gone, they are unsure what to do.”
“It’s time to buckle down and make sure we understand our business model. That means really understanding our numbers and what is happening in our business.” READ MORE
Aytekin Tank, founder of Jotform, makes the case for bootstrapping: “Bootstrapping may sound scrappy, but in many respects, it’s a luxury. As a bootstrapper, you have the luxury of focusing obsessively on your product and answering to no one. When I first founded my company, I loved our initial product, online forms, because I saw its potential to make people’s lives easier. That factor—ease of use—was my principal concern, hence our original tagline ‘The Easiest Form Builder.’ I loved the product so much, and I got so much joy from seeing people using it, that I gave it away for free (while clocking 9-5 at my day job). From February 2006 to March 2007, we didn’t have a paid version of our product. Nonetheless, this was a pivotal period for the company.”
“Why? Because I listened to early users and received invaluable feedback on how they were using our product and how I could improve it. I refined and iterated before I ever released a paid version. Because people genuinely saw the value in our product, we grew our customer base before spending a dime on marketing.”
“If I had investors who required me to meet arbitrary KPIs, I would have been spending my early days mastering PR and sales. I wasn’t an expert in either of those fields, nor did I enjoy them. I’m certain the company wouldn’t have taken off if I’d been forced to focus exclusively on those aspects of the business.”
“Recent reports show that in 2024, VC-funding hit a six-year low. This may have sent shudders across the startup landscape, but it shouldn’t. Bootstrapping is a safer, more reliable route. And perhaps most importantly for your company, it creates the optimal environment for developing a better product for your customers.” READ MORE
IMMIGRATION
Topeka is doing whatever it can to attract migrants: “While many American cities are struggling with large numbers of newly arrived migrants, Topeka is inviting anyone and everyone with permission to work in the U.S. to come its way. Like many smaller cities, the Kansas capital is grappling with near-stagnant population growth and an unemployment rate well below the national average, according to city and economic-development officials. Finding people to fill its roughly 6,600 open jobs has been a struggle, they say. The Greater Topeka Partnership, an economic-development group, has been trying to sell people on the city with its ‘Choose Topeka’ marketing campaign, which it started in 2019. Last year, it decided to direct those efforts toward immigrants, especially those from Spanish-speaking countries.”
“For Topeka Mayor Michael Padilla, a Democrat in a Republican-led state, the effort to attract immigrants along with Americans living in other cities just made sense. ‘We know that for our community to prosper we have to have a diverse community,’ said Padilla, who is in his first term. ‘We have to have people here who are willing to work and make this the city they want to raise a family in, get a career in.’”
“Separately, a refugee-aid group is working in Topeka to help Ukrainians find sponsors so they also can move to the U.S. under the Biden administration’s Uniting for Ukraine program. Yana Ross, founder and president of the aid group—Top City Promise—said it has helped resettle more than 160 Ukrainians in the city.”
“Jay Ives, one of three owners of the Blind Tiger Brewery and Restaurant in Topeka, said he supports any effort to lure new residents. His business, he said, has about six to eight openings among a staff of about 80, and is constantly in search of new hires. ‘We’ve got empty jobs here in Topeka, so bringing people to fill them is how we grow,’ the Topeka native said as he sipped one of his brewery’s beers on a recent weeknight.” READ MORE
An acclaimed restaurateur has lived with a secret: “From the outside, Arjav Ezekiel appears to be living the dream. Mr. Ezekiel, 36, is a consummate restaurateur and sommelier. With his wife, the chef Tracy Malechek-Ezekiel, he owns Birdie’s in Austin, Texas, a counter-service natural wine bar that, since opening in 2021, has become one of the most acclaimed restaurants in the country. He is smart, funny and personable, a new father who is an ideal restaurant host and a joy to discuss wine with. He also happened to spend much of his professional life as an undocumented immigrant, having come to the United States on a tourist visa with his family when he was 12.”
“‘People forget that everything they eat is likely to have been touched by somebody who didn’t have papers,’ Mr. Ezekiel said. ‘Whether restaurants, grocery stores or an incredible wine tasting in Napa Valley, the harvesting, the pruning — somewhere along the way it’s hard for me to imagine some undocumented immigrant didn’t play a role in that.’”
“The Pew Research Center, which calls itself a ‘nonpartisan fact tank,’ estimates that they make up roughly 3.4 percent to 4.4 percent of the American workforce, including nearly 12 percent of all food service workers and 25 percent of farm workers.”
“Marriage to a United States citizen permitted [Ezekiel] to get a green card, a passport and, in February 2023, citizenship. ‘I had it really lucky,’ he said. ‘I present as an American to most people. I’m racially ambiguous to some degree. I think a lot about how restaurants are filled with people like me.’” READ MORE
HUMAN RESOURCES
Long Covid has knocked a million people out of the workforce: “Never before have so many Americans redrawn their relationships with work as a result of one public-health crisis. More than four years after the pandemic began, some are still reckoning with how to balance their livelihoods and life with long Covid, the chronic condition doctors are still trying to understand. People at the height of careers in finance, technology and healthcare are operating without clarity on when, or if, they can resume the paths they once laid out. ‘Covid just kicked me off the train while it was still moving,’ said Amie Pascal, 47, who spent years climbing the ladder at a digital-marketing agency in Oregon before getting long Covid.”
“Long Covid has pushed around one million Americans out of the labor force, economists estimate. More than 5 percent of adults in the U.S. have long Covid, and it is most prevalent among Americans in their prime working years. About 3.6 million people reported significantly modifying their activities because of the illness in a recent survey by the Centers for Disease Control and Prevention.”
“Walking across the kitchen of her cafe in Biddeford, Maine, in June 2020, Stacy Cooper felt exhausted. She had wanted to return to work at Biscuits & Company, the cafe she had opened as a bucket-list project in 2014, believing she was recovering from a Covid infection. She wanted to help businesses and her community recover from the pandemic shutdowns.”
“But she couldn’t remember the names of her customers. She couldn’t recall their orders or where to find the cream. She couldn’t calculate their change and blanked while trying to use the credit-card machine. ‘Obviously I wasn’t recovering from the pandemic,’ Cooper said. She and her business partner closed Biscuits & Company in October 2021. She stopped her customer-service-training consultant practice, too.” READ MORE
Alan Pentz wants businesses to fight back against Glassdoor: “Let’s just get this over with up front: Glassdoor sucks. If I ever meet the founder, Richard Hohman, I’m going to punch him in the face (or at least say something rude). Employee reviews are fine but Glassdoor has an adverse-selection problem. Most reviews come from malcontents who were terrible employees and in some cases from people who aren’t and never were employees. And for small companies one review can be a big factor. You don’t have that many people in the company so some idiot who gets fired for stealing or having two jobs or being abusive to colleagues gets to kill your rating. But you can fight back, and I suggest you do.”
Solicit good reviews: “We improved our rating by asking for reviews during and right after orientation. People are learning about the company, are excited about their new job, and are generally positively inclined. It’s also an event where you can easily insert a solicitation into the process. If you aren’t hiring, make a list of all your happiest and best employees and start asking them for reviews one by one.”
Visit the site regularly: “I’d encourage you to have HR sign up for the site (officially) and go into the reviews and their fishbowl feature regularly. The fishbowl is their attempt to create social conversations amongst your employees on their site. You have to use a company email to register but your posts are anonymous. You want to keep a handle on conversation going on there and intervene if you need to.”
“Unfortunately, Glassdoor can be important for your company. Prospective hires look at it. Your competitors look at it. Your potential acquirers look at it. Etc. If you don’t stay on top of it, it’ll bite you in the ass.” READ MORE
RTO is killing work-life balance for moms: “After emerging from the fog of the early pandemic, mothers found that when working from home was combined with reliable child care, the dual demands of work and home were easier to meet. Moms who held demanding full-time jobs could suddenly achieve what had once seemed impossible: the ability to be a fully present parent without compromising their careers. It was a remarkable revelation. Now, with no compelling explanation beyond the nebulous benefit of in-person collaboration and the importance of office ‘culture,’ they were being told the experiment was over.”
“For this story, Bloomberg Businessweek spoke to nearly two dozen women who held jobs ranging from tech executive to administrative assistant at companies as large as Alphabet’s Google and as small as a mom-and-pop business in the Midwest. Some were single parents. Others were married with a high-earning spouse.”
“All wanted to further their careers (which is why many of them asked to go by just their first or middle name or, in some cases, to remain anonymous). But when asked to give up the flexibility remote work afforded—to, as many of them put it, choose between their kids and their jobs—they decided they were done.” READ MORE
Jason Fried has a list of questions he likes to ask when checking references: “It isn't a definitive list, and it depends on role, but it's a library I pull from, improvising from there. I'd never come close to asking all of these — I usually just ask a handful at most, depending on who I'm talking to. In conversation, words, phrases, and angles may vary, but essentially what I'm trying to get at stays the same. And remember, we already like this person a ton otherwise they wouldn't have progressed this far, so many of these questions are trying to suss out some of the limitations and blindspots we may not have noticed during the formal interview process.”
“Specifically, any areas where you were surprised they weren't as good as you expected with A, B, or C? Or much better than expected with D, E, and F?”
“Is there a difference between how a boss, a peer, or a direct report would describe them? If so, what's the difference?”
“If you were at another company, would you absolutely hire this person again for a similar role?” READ MORE
At a new restaurant in Chicago, the employees are all in recovery: “Monday marked the grand opening of Mac’s Deli, a restaurant that Haymarket Center has opened in order to employ patients in recovery and provide them with job training. Mac’s Deli will be fully staffed by Haymarket Center clients, with the proceeds from its classic Chicago fare going toward the center’s initiatives. The restaurant was built into the side of Haymarket Center’s building, just paces away from its other services. Mac’s Deli is designed to provide patients with substance use disorder an opportunity to return to the workforce within a supportive community centered around recovery, according to Haymarket Center President and CEO Dan Lustig.”
“The new employees of Mac’s Deli were trained by the staff of iconic Chicago brand Vienna Beef, which has partnered with Haymarket Center to provide various Vienna Beef products that will be served up or sold at the restaurant. Vienna Beef’s vice president of human resources, Rhonda Neville, wrote in an email to the Tribune that the meat products brand and Haymarket Center ‘are both Chicago institutions.’”
“Customers flocked to the bright red and yellow awning of Mac’s Deli on a cloudy Thursday afternoon, walking away with foil-wrapped workday lunches of warm Italian beef sandwiches and hot dogs. ... Preparing the French fries was Bryant Wynne, a 46-year-old South Side native whose first job was working as a fry person at Wendy’s. He has been a client of the Haymarket Center, a nonprofit treatment center for substance use disorders in the West Loop, for about a year and a half.”
“Wynne has received licenses in food service sanitation and food handling through his training with the Vienna Beef staff, which he said he hopes to apply to future jobs in the sector. He drew from his background at Wendy’s to teach other employees of Mac’s Deli how to prepare French fries that are ‘fresh and hot, with a little bit of salt.’ By Thursday of last week, the second day of an unpublicized soft opening, Mac’s Deli had already served hundreds of meals.” READ MORE
GOVERNMENT CONTRACTING
There’s a “hidden-gem” program that helps small businesses figure out how to sell to the government: “With trillions being spent on infrastructure, manufacturing and other programs, just about every business owner I know is interested in doing work with the federal government. Unfortunately, most are unsure where to get started and others are put off by the complexity of the process. This doesn’t have to be. Apex Accelerators, a little-known program within the Department of Defense, can help overcome these challenges and create new revenue streams for many small businesses.”
“The program assists a wide range of businesses that pursue contracts not only with the Department of Defense but with most other federal agencies, state and local governments and with prime contractors who work directly with the government. The program was authorized in 1985 but moved to the Department of Defense in 2020 in order to build ‘strong, sustainable, and resilient U.S. supply chains.’”
“According to Apex’s director Khalil Mack, the program is ‘a hidden gem’ in the government. ‘We exist in order to help small businesses successfully compete for both federal and state government contracts, regardless of the agency,’ he said. ‘We provide one-on-one counseling and a lot of hand-holding.’”
“Never done business with the government before? Reach out to Apex at one of their more 97 offices across 49 states and territories (including ones at the Philadelphia Navy Yard and Kutztown University and numerous locations in New Jersey and Delaware). An adviser will help match your business to contracts offered by all agencies of the federal government specific to your industry.”
“All of the services provided by Apex are free and available to businesses of all sizes. There is also an emphasis on helping underserved businesses — such as businesses run by people with disabilities, or in historically underutilized business zones, as well as companies owned by women and veterans.” READ MORE
FRANCHISING
When Chick-fil-A interviews potential franchisees, there’s one question its reps ask over and over: “You should know that getting a Chick-fil-A franchise is one of those things in life that is much harder to do statistically than many people would realize. With thousands of applicants for a chain that opens a few dozen restaurants each year, we're looking at a 1 percent success rate, at best. Why so many applicants? Maybe because Chick-fil-A requires only a $10,000 franchise fee, compared to as much as millions for other brands. Plus, some reports suggest that Chick-fil-A owner-operators can make as much as $300,000 per year.”
“The question they ask over and over in franchisee interviews is simply: ‘Why do you want to own and operate a Chick-fil-A franchise restaurant?’ The reason they ask it so often is to track the candidates' answers over time and ensure that people have thought it through deeply. In short, I think they want to know if applicants know what they're getting into.”
“I asked Chick-fil-A for a few more details. One data point is that fully 76 percent of successful franchise candidates over the past two years previously worked at a Chick-fil-A restaurant. So that's apparently one way to up your odds.” READ MORE
RETAIL
More retailers have started charging for returns: “Online return rates have jumped over the past five years, pitting stores against shoppers in an escalating battle. Retail chains such as Saks Fifth Avenue, Abercrombie & Fitch, and Zara have cracked down, adding return fees and shortening return windows. Shoppers are pushing back. They are reading the fine print of return policies and product reviews that they hope will help them divine the quality and fit of potential purchases. Some have stopped buying altogether from retailers that charge for returns.”
“In April, Saks began charging $9.95 for returns by mail, while Neiman charges a similar fee for clearance items and those returned after 15 days. ... More than two-thirds of consumers who are aware of stricter return policies say those rules deter them from making purchases, up from 59 percent in 2023, according to a survey of 1,000 U.S. adults in July by Blue Yonder, a supply-chain management company.”
“Raimonds Lauzums, who owns a toy store in Belgium, Wis., said he received a barrage of angry emails from customers when he tried charging $8 for returns by mail. The 28-year-old reverted to offering free returns for online orders, even though some customers have scammed him. One ordered a $1,000 Lego set and returned an empty box. Another returned a box of cereal in place of a different Lego set.”
“H&M Group is a minority investor in Stockholm-based eComID, which uses artificial intelligence to generate personalized shipping and return fees. The fewer items someone returns in a year to a particular brand, the lower the personalized fee. Oscar Rundqvist, eComID’s co-founder and chief executive, said the 15 brands using his technology, including H&M’s & Other Stories brand, have had a 35-percent reduction in bracketing, a term for the common practice of buying multiple sizes and returning those that don’t fit.”
“Tote, a fitting-room booking platform, is offering an alternative to bracketing: appointment shopping. Shoppers browsing a brand’s website can reserve items for a specified day and time to try on at a physical store. The store will have the items waiting in a fitting room when the customer arrives. The service is free to shoppers, and Tote collects a fee from the 48 brands currently using its system.” READ MORE
New York City is trading drugstores for golf simulators: “Over the past year or so, the commercial real estate industry has made it very easy for me to satisfy an urge I am not sure I will ever have. Within a six- or seven-minute walk from my apartment in Brooklyn, it is now possible to get to two indoor golf simulators — places where the purpose is to successfully whack a ball into a 10-ft screen that delivers digital replicas of famous golf courses and a soul-crushing lineup of metrics about the reach, speed and accuracy of any particular swing.”
“Indoor golf facilities have proliferated in the city during the past few years, in part because the pandemic boosted interest in golf generally. In 2023, according to the National Golf Foundation, a record 3.4 million people played on a golf course for the first time.”
“Late in 2020, a local community group, the Brooklyn Heights Association, conducted a survey to determine what sort of stores people in the neighborhood most wanted to see in the empty spaces that were a problem even before the pandemic. When the people spoke, they said they wanted a specialty food shop, a fish store, a butcher. None of those materialized.”
“Purveyors of farmstead cheeses, wild salmon and other staples of the bourgeois dinner table could not manage the rents. The dream of a small-scale food hall in a building previously occupied by an Ann Taylor Loft died when it was announced that a private-equity-backed veterinary chain was moving in.” READ MORE
TRADE
Small, independently owned companies trying to make apparel in the U.S. say their biggest impediment is an obscure trade rule: “In his 40-year career, William Lucas has seen nearly every step in the erosion of the American garment industry. As general manager of Eagle Sportswear, a company in Middlesex, N.C., that cuts, sews and assembles apparel, he hopes to keep what’s left of that industry intact. Mr. Lucas, 59, has invested hundreds of thousands of dollars training his workers to use more efficient techniques that come with financial bonuses to get employees to work faster. But he fears that his investments may be undermined by a U.S. trade rule.”
“The rule, known as de minimis, allows foreign companies to ship goods worth less than $800 directly to U.S. customers while avoiding tariffs. Mr. Lucas and other textile makers in the Carolinas, once a textile hub, contend that the provision — nearly a century old, but exploding in use — motivates retailers to rely even more on foreign producers to keep prices low.”
“During the pandemic, when e-commerce purchases soared, so did the use of de minimis. In the 2016 fiscal year, 150 million packages entered the United States tariff-free under the policy, but by 2023, that figure rose to more than one billion, according to Customs and Border Protection. About half are textile and apparel products.”
“Through most of the 20th century, mills in the region were abundant. That started to change in the 1990s after the North American Free Trade Agreement was signed, eliminating U.S. duties on products from neighboring countries, and large multinational companies started to move garment production to Mexico.”
“The surviving companies are mostly family-run and privately held, consistently steering money back into their businesses to pay for expensive new equipment and automation to remain competitive. Many produce items for the U.S. military, which requires some clothing to be American made, or for companies whose stated mission is just that. In 2022, just 2.9 percent of the apparel sold in the United States was made domestically ...” READ MORE
These companies are skeptical that Trump’s tariffs will spur a manufacturing revival in the U.S.: “[Ryan Neel] runs Neel’s Saddlery & Harness, which imports industrial-size sewing machines from China that his customers use to make heavy-duty gear such as parachute straps and gun holsters. Setting up production in the U..S for a machine that currently retails for $3,000 would require more than tripling the price, to $10,000. ‘We have run the numbers ad nauseam,’ says Neel. ‘At that price nobody would buy it.’ Neel’s predicament aligns with other American manufacturers who say repatriating factory jobs that left for China and other parts of Asia decades ago faces many hurdles. Skills shortages, higher labor costs and tax bills, and strict environmental regulations will need radical strategies for change if the U.S. is to compete, they say.”
“One of the people considering ways to bring back production is David Zampierin, who runs Meridian, Idaho-based Zamp Racing, a maker of helmets, suits, and head and neck restraints as well as harnesses for auto racing drivers in markets in the U.S., Europe, Australia, and New Zealand.”
“He designs his products in the U.S. and has some local manufacturing along with production in China, Italy, Taiwan, and Pakistan. Environmental rules on the treatment of waste paint and fumes mean he can’t paint the shells of his racing helmets in the U.S. ‘It just makes it really hard to compete when the same standards aren’t used worldwide,’ he says.” READ MORE
REGULATION
Here’s what it took for one entrepreneur to navigate the bureaucracy and open a bakery in San Francisco: “How much does it cost to build a wheelchair-accessible ramp in San Francisco? Well, it depends how many times you have to build it. For Sophie Smith, owner of the North Beach bakery Butter and Crumble, the total cost ended up being around $30,000. That’s because she had to redesign the ramp four times and completely rebuild it once. It was just one of many expensive and frustrating delays Smith dealt with in trying to get her business permits — delays she attributes to conflicting information she received from different city departments. After a permit expediter agreed to help her out pro bono, Smith was finally able to open her bakery last October, a month later than she'd hoped.”
“Smith’s is just one story among many in a city where opening a restaurant can require approval from 11 different agencies, according to a 2022 report by the Institute for Justice. Katy Tang, director of San Francisco’s Office of Small Business, said each case is unique, but conceded that the researchers' figure ‘could be correct.’”
“Restaurants, with a whopping 61 steps in the permitting process, are especially in need of assistance, according to the Institute for Justice report. But they’re not the only ones. Barber shops must tangle with nine agencies. Even opening a food truck is no picnic: It requires approval from seven. Bookstores can expect to paper up with five agencies and go through more than 30 steps. And all this costs money.”
“Butter & Crumble is doing well — the bakery’s neon ‘sold out’ sign lights up every afternoon — and Smith’s friends have started to ask her whether she’ll open a second location. The answer: not anytime soon. ‘I’m so scarred. I need at least a few years to recover,’ Smith said. ‘Hopefully by the time we get to it, there will be a lot of reform to make it easier.’” READ MORE
BUYING A BUSINESS
Michael Girdley offers lessons in evaluating a business listing, including asking one all-important question: “The listing tells you the seller’s mindset: We’ve looked at crazy business listings in ALL CAPS, messing up terms and looking unprofessional. A crazy listing means you likely have a crazy seller. On the other hand, a well-written listing is a good sign they have their act together.”
“Every business was affected by Covid: The tricky part is parsing the Covid weirdness from the actual business health. If the business did badly in 2020-2021? ‘It’s just a one-time Covid blip, everything’s great.’ If the business did great? ‘Covid didn’t affect us, it’s all fundamentals.’ What was one-time? What wasn’t? It’s often impossible to know.”
“Watch out for real estate time bombs: Many times we’ve looked at a small business going for a great price, with great financials, and everything looking amazing… But then the fine print says ‘Lease terminates in May 2025.’ And if your business is even slightly location-dependent, you’re in big trouble. Because you can have a great 11 months, but guess what happens to your rent next year?”
“Why am I the lucky buyer? If you’ve been reading my newsletter a while, you probably know this is one of my favorite questions. I’ve looked at tons of deals that made no sense. Everything looks great on paper, but it’s been on the market for ages. Why did dozens of smart, knowledgeable buyers already pass? Assume plenty of those buyers know the industry better than you do. If you don’t have a good answer to this question. … Run!” READ MORE
SUCCESSION
Brad Herrmann makes the case for Employee Ownership Trusts: “An EOT is a type of employee ownership option that is widely used in the U.K. but is just gaining ground in the U.S. Although similar, an EOT is different from the more popular employee stock ownership plan. Both options create a trust for the business owner to sell their shares to, but how those shares are handled differs significantly. In the case of an EOT, shares are not disbursed to employees, so the trust does not have to buy the shares back if an employee leaves the company. Employees in an EOT benefit from simple profit-sharing. Another benefit of an EOT is reduced regulatory requirements compared to the ESOP, making it a less complex and more flexible option for companies and their founders.”
“All too often, founders or executives decide to sell a company, only to see a large portion of the workforce laid off by the new owners. ... For a founder who has built a company from the ground up, worked closely with individuals for years, and views the company's employees as part of their family, the thought of them losing their jobs post-sale is often a sickening prospect. With an EOT, however, employees are in control of their fate, investing in a future that no one can take away from them.”
“One of the biggest benefits of the EOT model is that it leaves the original owner in control. When a founder sells their company to a venture capital or private equity firm, they often lose all control over the company they built. In contrast, when an EOT is created, there are very few changes in the day-to-day operations, especially for the founder(s) of the company. In the case of my company, I remain CEO, my partner and I both have seats on the board, and it is business as usual.” READ MORE
John Warrillow has mixed feelings about private equity firms rolling up small businesses: “Last week, I interviewed Jordan Dubin, who is acquiring garage door companies for around five times EBITDA, with the goal of selling the collection for something closer to 20 times EBITDA. Acquirers place a premium on larger businesses, and the opportunity to play this game of ‘multiple arbitrage’ is so obvious that I can see why so many business school grads are drawn to becoming ‘acquisition entrepreneurs.’ If I were graduating today, I think I’d probably do the same.”
“Owners that sell to private equity often roll some equity into the deal, giving them the chance to benefit from the proverbial ‘second bite of the apple’ when the private equity firm eventually sells. But they’re still minority shareholders, so the lion’s share of the spoils goes to the private equity buyer stitching the deal together.”
“None of this is a criticism of Jordan, who is clearly a smart, hardworking, and charismatic entrepreneur. In fact, it’s hard not to admire what he’s built. But I do wonder if the system itself is tilted against small business owners. Does it really make sense that a private equity firm can quadruple the multiple they paid for a business simply because they understand negotiation and have access to capital? Are they truly adding enough value to justify that premium? Or is this more about financial engineering than building better businesses?” READ MORE
The New York Times paints a bleak portrait of what life can be like for a retired business owner: “When her husband, Richard McCracken, retired from the business he built, Yvonne was still working from their home in Charlotte, N.C., as a quality-assurance specialist for a network of research sites, and she could feel him hovering near her desk off the kitchen as he did busy work on his laptop. Having left her largely in charge, for most of their marriage, of raising two daughters, dealing with the home, and managing her own career, Richard now seemed to have had some late-in-life revelation that his wife could clearly benefit from his input.”
“He had ideas about how she should manage her team, which he sometimes shared after she completed Zoom calls: She should have told them to solve a problem a certain way, or given them more direction. The advice irritated Yvonne, who is not a fan of micromanagement (of herself or others).”
“She wondered: Was this what he was like as a boss at the business he ran? She supposed so. She had never given her husband’s work persona much thought. That part of his life was separate from her own, but instead of receding now that he was retired, it seemed to be taking up even more space.”
“The couple had coexisted on separate tracks for many years, so much so that even the sweet moments of retirement, like weekends with their grandchildren, to whom Richard was devoted, kicked up feelings of regret and loss for Yvonne. As a working mother, she had done the large part of the child rearing on her own, without a fully invested partner.”
“‘He’ll say to me about the grandchildren, Wow, they’re so bright and interesting,’ she said. ‘And I’ll say, You know, your own children were very bright and interesting, too.’” READ MORE
When Jenny Bristow had a major stroke at 39, her business was prepared: “For about five minutes last January, Jenny Bristow couldn't speak, and the 39-year-old lost control of her left hand while playing disc golf on a trip to Arizona with her husband. At first, he thought she was joking around, but then the left side of her body went numb, and the left side of her face drooped. ‘I was so young, a stroke was the last thing we thought of,’ says Bristow, the now 40-year-old founder and CEO of Hedy & Hopp, a St. Louis health care marketing company.”
“For many entrepreneurs, these kinds of health problems would spell doom for their business. After all, a young company's trajectory is typically closely tied to its leader and founder. But Bristow is a planner. And instead of withering in her absence, the company says it's now on track to nearly double its annual revenue to $4 million.”
“Just weeks before her last mini-stroke—without any inkling something might go wrong—she was finalizing contingency plans to ensure that life could go on for the company and her family if anything were to happen to her or any other key employee in the company. That included a trust, a life insurance policy, disability coverage, and buy-sell agreements that dictated what would happen if she were to die or become disabled.”
“It also specified who would lead the company or buy it and at what price. It took a year and $15,000 to create these plans, something few founders put as a top priority when running at breakneck speed. ‘But it was worth the peace of mind,’ she says.”
“That's not to say everything was easy. The company added only a few new clients for a year because Bristow handles sales. And she was struggling personally with debilitating anxiety about her health, so much that she feared she would have another stroke if she exercised. ‘My safe space was in the dark on the couch watching reruns of The Office,’ she says. Bristow ultimately went to a therapist to overcome those fears and anxiety.” READ MORE
OBITUARIES
Steve Mariotti founded the Network for Teaching Entrepreneurship: “Mr. Mariotti believed that imparting business basics to poor, mostly minority students who saw no connection between school and the quality of their lives could help them develop an interest in math and writing, improve their behavior, and instill a belief in themselves and a hope for the future. The organization, which he started on his modest teacher’s salary, now has a $12 million budget, oversees programs in 28 states and 27 countries, and reports that 80 percent of its alumni have earned or are earning college degrees or professional certificates.”
“In 1981, when he owned a small import-export business in New York, he was mugged by six teenage boys while jogging along the East River. Angry that he had only $10 in his running shorts, the boys punched him, flashed knives, and threatened to throw him into the river.”
“After the attack, Mr. Mariotti was plagued by nightmares and a sense of humiliation. When a therapist diagnosed post-traumatic stress syndrome and advised him that he could conquer it by becoming ‘a teacher of difficult students in a difficult school,’ Mr. Mariotti left his business and began teaching remedial math at Boys and Girls High School, in the Bedford-Stuyvesant section of Brooklyn.”
“His new students mocked him as ‘Mr. Manicotti’ while blasting music in class and dancing on his desk. It was only when he introduced a lesson on how businesses made profits — distributing handfuls of coins for a game in which they pretended to be a shopkeeper and customers — that they began to pay attention.”
“‘Jasmine Lawrence Campbell, an alumna of a NFTE course, who founded EDEN BodyWorks, a beauty products line sold in Walmart, wrote on LinkedIn: ‘There would be no EDEN BodyWorks without NFTE. I’m so grateful for the organization Steve Mariotti founded that radically changed the course of my life.’” READ MORE
Bernie Marcus co-founded Home Depot: “Mr. Marcus had just been fired as chief executive of a California-based hardware chain in 1978 when he hit on the idea of a store — nothing fancy — that would appeal mainly to the weekend warrior doing repairs and making improvements around the house and yard. The formula was simple: Stock the shelves to the ceiling with a vast selection of every conceivable home-improvement product at discount prices, and hire knowledgeable salespeople to double as customer advisers. He and his partner, Arthur Blank, a former colleague at the California chain, Handy Dan, launched Home Depot that year. Its first outlet was opened in Atlanta with the backing of the Wall Street financier Ken Langone. Today, Home Depot boasts more than 2,300 stores across North America, with more than $150 billion in annual revenue.”
“Mr. Marcus oversaw the company’s explosive growth as chief executive for its first 19 years and chairman until 2002. Along the way he, Mr. Blank and Mr. Langone became billionaires; they also lined the pockets of legions of Home Depot employees who had received generous stock options.”
“Competitors like Handy Dan operated stores no bigger than 35,000 square feet. But as he and Mr. Blank wrote, in ‘Built From Scratch: How a Couple of Regular Guys Grew the Home Depot From Nothing to $30 Billion,’ Mr. Marcus envisioned warehouse-style outlets of 55,000 to 75,000 square feet. He insisted on buying merchandise directly from manufacturers, eliminating the middlemen and, indeed, actual warehouses, so that, as the partners wrote, ‘we could give their profit back to our customers in price reductions.’”
“Mr. Blank was skeptical at first. ‘When I did our first five-year plan,’ he said, ‘before we had any stores and were trying to find potential investors, I called him and said, Bernie, based on the parameters we set up, these numbers don’t work. There’s not enough volume in these stores to support the inventory levels, the payroll, and the margins. The math doesn’t work. Bernie said, Just change the numbers. We had no idea what the store volumes would be, but his optimism turned out to be true.” READ MORE
Happy New Year, everyone! We will return to our daily publishing schedule on Monday.
— Loren
Excellent recap from some really great minds. What a year it was and here's to the next one. Thank you to Loren and the 21 Hats community for the conversations and support. An excellent group for business owners and CEO's.