Why Am I the Lucky Buyer?
That’s the question Michael Girdley always asks when assessing a business listing that seems promising. If you don’t have a good answer, he says, “Run!”
Good Morning!
Here are today’s highlights:
Does Starbucks help generate startups?
Gene Marks says business owners should prepare for higher inflation and higher interest rates.
A new ruling makes it less likely that the ban on non-competes will take effect.
The hottest thing in retail just might be bookstores that specialize in romance novels.
BUYING A BUSINESS
Michael Girdley offers nine lessons on evaluating a business listing: “I’ve bought and sold a bunch of businesses in my time. I’ve been roasting, I mean evaluating, business listings for years on my podcast Acquisitions Anonymous. Heck, I even made a beginner’s course on how to find the right business to buy. What I’m saying is, I’ve looked at a TON of business listings. And when you spend enough hours doing something, you develop an instinct.”
“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 those plenty of those buyers know the industry better than you do. If you don’t have a good answer to this question. … Run!” SUBSCRIBE HERE
STARTUPS
Does a Starbucks in the neighborhood encourage entrepreneurship? “Choi Jinkyong, Jorge Guzman, and Mario Small, all of Columbia University, find that a new Starbucks in an American neighborhood without a coffee shop leads to the creation of between 1.1 and 3.5 new companies a year over the next seven years. That, the authors argue, owes to the café’s role as a ‘third place’—somewhere people can gather without a purpose. Branches ‘help entrepreneurs form and mobilize networks,’ they write.”
“The authors provide further evidence that the benefits are thanks to a new third space. They find no similar effects for Dunkin’ Donuts, which does not typically provide much seating. By contrast, Caribou Coffee, a chain in the Midwest, has a similar model to Starbucks and provides similar benefits.” READ MORE
THE 21 HATS PODCAST: DASHBOARD
Is It Time to Panic About Deficits? No, says Gene Marks, who — it may surprise you to hear — offers three main reasons he doesn’t believe business owners should be overly concerned about the U.S. government’s growing debt. That said, he does believe that we are likely to operate in an environment of higher inflation and higher interest rates for some time, and he says that is likely to require some adjustment in the thinking of business owners.
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THE ECONOMY
Business heavyweights Robert Rubin and Kenneth Chenault make the business case against a second Trump term: “At a time when our country was already on an increasingly risky debt trajectory, President Trump’s first-term tax initiatives added an estimated $3.9 trillion to the national debt, according to Brian Riedl of the Manhattan Institute. Mainstream analyses concluded that the result — increasing demand in an already full employment economy while having a negligible effect on business investment — added very little benefit in the shorter term and virtually nothing in the longer term.”
“A Committee for a Responsible Federal Budget report said that extending the 2017 tax cuts alone would add another $3.9 trillion to the federal debt and increase our debt-to-G.D.P. ratio by approximately 10 percent. This would likely lead to higher interest rates and greater inflation while undermining business confidence, and could reduce our resilience in the face of future national-security or economic crises.”
“Mr. Trump would also reduce legal immigration at a time when our economy needs additional workers at all skill levels. Companies are already moving some operations outside of the United States in order to find needed staff. Ordering the military to deport millions, as he has threatened to do, would not only lead to widespread social instability but also fail to approach the issue of undocumented workers in a way that meets our economic needs.”
“On trade, raising tariffs across the board — as Mr. Trump has promised repeatedly to do — would increase prices for American producers and consumers, reduce our global competitiveness and likely lead other countries to retaliate against our exporters.” READ MORE
The smallest of small businesses are struggling: “The latest data from the Federal Reserve’s Small Business Credit Survey — released earlier this year but since followed up with a more detailed breakdown by size and demographics — shows how, even within the realm of small businesses, there is wide variation. The new data breaks out the experiences of small businesses by size, with the smallest being one to four employees and the largest between 50 to 499 employees. The 500-employee limit is generally accepted as the upper bound for small businesses. The differences among small businesses are stark, however.”
“The smallest businesses had the largest share reporting a revenue drop over the past 12 months, at 40 percent, compared to 36 percent for businesses with 50 to 499 employees. They also had the smallest share of those who reported an increase over the past year, at 40 percent, compared to 52 percent of the largest small businesses.”
“Worse yet, 40 percent of small businesses with four or fewer employees said they were operating at a loss, compared to just 16 percent of businesses with more than 50 employees. Meanwhile, those larger businesses were most likely to report a profit — 73 percent, compared to just 42 percent of the smallest businesses.” READ MORE
REGULATION
California Governor Newsom has signed a reform package that makes it harder to sue businesses: “Businesses and their advocates have long sought to change PAGA, which empowers individual workers to sue their employers on behalf of the state for labor code violations, like missing lunch breaks or overtime pay. Business advocates have long argued that PAGA is ripe for abuse by disgruntled employees and predatory attorneys, who overwhelm businesses with costly, drawn-out litigation over minor violations. The new reforms are in the right direction, said Elizabeth Stallard, a shareholder in the Sacramento office of the business law firm Buchalter: ‘It appears to really offer some benefits to employers who are trying to do the right thing.”
“In some cases, the reforms give employers the chance to head off claims before they’re even filed. ‘For the small employers, there’s this opportunity,’ Stallard said. ‘It’s a settlement process that you can avail yourself of before the actual complaint is filed.’”
“It’s important to note, Stallard said, that the reforms only apply to cases filed on or after June 19. ‘If the case was already pending, it's going to be governed by the prior law,’ Stallard said.” READ MORE
A federal judge’s ruling makes it less likely that FTC’s ban on non-competes will take effect: “In April, the tax firm Ryan LLC sued to block the near-total ban on noncompetes, just hours after the FTC voted 3 to 2 to adopt the rule. The U.S. Chamber of Commerce later joined the case as a plaintiff, as did the Business Roundtable and two Texas business groups. Banning non-compete agreements, which prohibit workers from switching jobs within an industry, would increase workers’ earnings by at least $400 billion over the next decade, the FTC estimates. The agreements affect roughly one in five American workers, or around 30 million people, according to the agency, whose purview includes antitrust and consumer protection issues.”
“Business groups argue that the ban would limit their ability to protect trade secrets and confidential information. The Chamber of Commerce and other groups assert that the FTC lacks constitutional and statutory authority to adopt its proposed rule, with Ryan LLC calling it ‘arbitrary, capricious, and otherwise unlawful.’”
“The Supreme Court’s decision last week to limit the broad regulatory power of federal agencies could raise the agency’s legal hurdles. Mark Goldstein, a labor and employment lawyer at Reed Smith in New York, said that while limited to only the plaintiffs at this stage, Judge Brown’s injunction was a strong indication that she would deem the FTC’s rule invalid, preventing it from going into effect nationwide.” READ MORE
RETAIL
Romance bookstores are booming: “Over the last two years, the country went from having two dedicated romance bookstores — The Ripped Bodice and Love’s Sweet Arrow, in Chicago — to a national network of more than 20. Among them: Tropes & Trifles in Minneapolis; Grump and Sunshine in Belfast, Maine; Beauty and the Book in Anchorage; Lovebound Library in Salt Lake City; and Blush Bookstore in Wichita, Kan. More are on the way, including Kiss & Tale in Collingswood, N.J.; The New Romantics in Orlando, Fla.; and Grand Gesture Books in Portland, Ore., an online romance store that’s moving into a storefront. The bookstores are largely owned and operated by women. And women make up the majority of the readers who have sent romance sales soaring — from 18 million print copies sold in 2020 to more than 39 million in 2023, according to Circana BookScan.”
“The shift is huge from the days when romance was looked down upon as frothy and unserious ‘chick-lit,’ or as smut. Even just a few years ago, many independent bookstores carried only a small selection of romance novels, often relegated to a shelf in the back of the store.”
“Romance sales began to soar during the pandemic, as people rediscovered reading and many turned to romance fiction as an escape (one rule of the genre is that the stories almost always end with an H.E.A. — Happily Ever After). The arrival of BookTok also helped drive the surge, as TikTok influencers drew in younger readers with videos championing their favorite authors.”
“Steamy Lit also stocks some general fiction and nonfiction for the rare customer who doesn’t like romance, on a bookshelf labeled, ‘I Got Dragged Here.’ It’s tucked away in a discreet spot, at the back of the store.” READ MORE
And bulk refill stores are spreading: “With a Mason jar in one hand, I scanned the row of large glass and plastic jugs lining the wall in front of me. Each contained a different soap or detergent. The array was dizzying. It was my first time at a bulk refill and zero-waste shop, where customers bring their own reusable containers instead of buying products packaged in single-use plastic.”
“These stores — which sell cleaning and personal-care supplies, dried foods, and more — are growing in popularity as a way to reduce plastic waste. Packaging accounts for about 36 percent of all global plastic production, according to a recent report by the U.S. PIRG Education Fund, a nonpartisan consumer advocacy group.”
“I found myself among a handful of customers milling around the brightly lit 1,200-square-foot shop. Aside from dozens of dried-food dispensers, there were shelves holding spices, loose-leaf teas, and cooking oils and vinegar. The ‘Soap Station’ with detergents, dish soaps and other cleaning products occupied a back corner near personal care items, including bulk face wash and lotion.”
“Online directories suggest there are at least 600 refill stores and mobile delivery services across the country, including two within a 40-minute drive from my apartment in D.C.”
“My total, including tax, came out to $66.43. Looking at my receipt, I understood why some experts I spoke to highlighted cost as a barrier for many potential refill shoppers.” READ MORE
THE 21 HATS PODCAST
I Used to Sell to Consumers: This week, Paul Downs, Jaci Russo, and Sarah Segal talk about how they wound up pitching their products and services not to consumers, but to other businesses. They all agree that selling to business is more profitable, and they all agree that it has other advantages, as well. “In general,” says Paul, “it's easier to sell to businesses because the person you're talking to, it's rarely their money.” But some aspects of selling B2B can be harder. For example, how do you break through and reach the right person at a business, especially if you’re trying to reach the owner directly? And of course, there’s always a learning curve: Selling to a big business requires a level of professionalism that can be challenging, especially early on.
Plus: Sarah explains why—even though she had to lay off people last year—she’s doubling her office space this year. Jaci is exploring what policies make hybrid offices most effective. And Paul, who says he’s having his best year ever, spells out the way he calculates when it’s time to add employees, as he had to do earlier this year.
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Thanks for reading, everyone. — Loren