Why Aren’t There More ESOPs?

Today’s highlights: Why caterers may be struggling more than restaurants. Why economists expect 4-percent growth this year. Plus, the startups taking the guilt out of takeout. 

Only 45 percent of American companies give employees Martin Luther King Day off, according to Marker, but 21 Hats is one of those companies. Enjoy your weekend, and we’ll see you on Tuesday. 


Economists say they expect GDP growth to exceed 4 percent this year: “Economists raised their growth prediction for 2021 U.S. gross domestic product in the January survey, saying vaccinations and the prospect of additional financial relief from Washington for individuals and businesses brightened economic prospects. The latest 2021 growth prediction, measured from the fourth quarter of the prior year, was a sharp increase from the 3.7 percent growth forecast for 2021 in last month’s survey.”

  • “Growth this year is expected to follow a contraction of 2.5 percent in 2020, when the pandemic hit, according to the survey.”

  • “‘No vaccine, no recovery,’ Joseph Brusuelas, chief economist at RSM US LLP, said. ‘The discovery of a vaccine will likely unleash over $1 trillion in excess savings that will satiate pent up demand.’” READ MORE


Why aren’t there more employee-owned companies? “The most prominent barrier is awareness. If more selling owners knew about the option, some would likely take it up. However, another barrier is the lack of expertise among necessary service providers — lawyers, accountants, government officials, outside estimators of a company’s worth — necessary to set up the plans. A third barrier is the opportunity cost.

  • “Both the survey and the interviews suggest that concerns around legacy, job quality, employee sense of ownership, and other such intangibles play a significant role in the motivation to sell into an ESOP.”

  • “One barrier I expected to find received mixed evidence from this analysis: reluctance to incur the debt often required in the process of setting up an ESOP.”

  • “Perhaps because the cost of capital has been so low for so long, in tandem with ESOPs’ tax advantages, this concern was downplayed in the interviews with owners who set up ESOPs.” READ THE WHOLE STUDY

Is it time to replace the public corporation? “The professionally managed, widely held, publicly traded corporation has been the dominant structure in business for the past 100 years. It came to prominence in the wake of the Great Depression because it was effective at mobilizing capital from private investors—who by the 1960s held more than 80 percent of company stock—for productive ventures. The model enabled executives to focus on long-term growth and profitability, to the benefit of the many individuals who owned shares in their companies.”

  • “Critics charge that in today’s far more heavily traded capital markets, the model increasingly incentivizes executives to manage in tiny, short-term windows, with an eager eye on their stock-based compensation and a fearful one on activist hedge funds.”

  • “Whether or not they’re right, something isn’t working. The number of public companies in the United States halved from 1997 to 2015, while the number of controlled companies (those with a dominant shareholder or a dominant group of shareholders) in the S&P 1500 increased by 31 percent from 2002 to 2012.”

  • “I believe that the most likely successor is what I call the long-term enterprise, a private company in which ownership is limited to the stakeholders with the greatest interest in long-term value: retirement investors and employees.” READ MORE


Capsule is a video Q&A platform that emerged in response to the challenges companies were facing reaching consumers during the pandemic: “Launched last year, the startup offers a full platform for hosting Q&A sessions, where the brand starts with a template that they then customize to match their campaign by changing the logo, colors, buttons, background and URLs — sort of a like a Squarespace for the video Q&A format. The brand will then write their questions and prompts for consumers to answer, in the form of short video responses. This Q&A URL is distributed however the company chooses — like on social media, for example. A new feature also allows a ‘capsule’ to be embedded on the website.” READ MORE

These startups are trying to take the guilt out of takeout: “Adam Farbiarz relies on restaurant takeout. But he doesn’t like all the packaging that comes with it. Most of us simply sigh over the waste and move on. But in late 2019, Mr. Farbiarz and two partners launched DeliverZero, an online platform that lets customers order from restaurants that offer reusable containers, then return them to the delivery person the next time they order. The network began with five restaurants, all in Mr. Farbiarz’s Brooklyn neighborhood. A year later, the company had 120 restaurants throughout New York City and a backlog waiting to join.”

  • “DeliverZero is one of a number of startups that have set out to tackle restaurant waste. The boomlet is happening mostly in eco-conscious cities including San Francisco, Portland, Ore., and Durham, N.C.”

  • “Loop, a refillable packaging initiative from the recycling company TerraCycle, is launching pilots this year with chains such as McDonald’s in the U.K., Tim Hortons in Canada, and Burger King in the U.S.” READ MORE


Caterers may be struggling even more than restaurants: “In the early days of lockdown, [Chap Gage, who runs Susan Gage Caterers in Hyattsville, Md., with his mother] scrambled to create a meal delivery service, figuring out how to portion and package individual servings, set up an ordering service, and deploy drivers to doorsteps. That lasted seven or eight months, he says. Since then, he has started a kosher food truck, a kosher catering arm, offered cooking demonstrations and cocktail classes online, and even hosted drive-in movie nights for private groups in the company’s parking lot.”

  • “Caterers were left even more vulnerable than the eateries that were able to shift to takeout-dependent models. Unlike restaurants, they didn’t have direct relationships with consumers.”

  • “Not only have caterers lost significant revenue, says NACE president Morgan Montgomery, but they have had to foot legal fees as clients sued to get their deposits back after events were canceled.”

  • “So you have frustrated parties on both sides: Clients who didn’t choose to cancel their wedding or party, and caterers who have already invested time and planning. READ MORE


Under a new rule, banks would be prohibited from blacklisting an industry: “The move by the Trump administration regulator, Brian Brooks, was in response to complaints from the oil-and-gas industry after top banks have said they would stop financing new Arctic-drilling projects, citing their dismal returns and pressure from environmentalists and others. The rule from the Office of the Comptroller of the Currency was completed just 10 days after its formal comment period ended—unusually quickly in the slow world of federal rule writing—and may be challenged by banks, which say it micromanages credit decisions.”

  • “The Biden administration may also seek to overturn the rule using a legislative tool known as the Congressional Review Act.” READ MORE


The pandemic has broken the hold the Bay Area once held on tech workers: “The No. 1 pick for people leaving San Francisco is Austin, Texas, with other winners including Seattle, New York and Chicago, according to moveBuddha, a site that compiles data on moving. Some cities have even set up recruiting programs to lure them to new homes. Miami’s mayor has even been inviting tech people to move there in his Twitter posts. I talked to more than two dozen tech executives and workers who have left San Francisco for other parts of the country over the last year, like a young entrepreneur who moved home to Georgia and another who has created a community in Puerto Rico.”

  • “‘I miss San Francisco. I miss the life I had there,’ said John Gardner, 35, the founder and chief executive of Kickoff, a remote personal training startup, who packed his things into storage and left in a camper van to wander America. ‘But right now it’s just like: What else can God and the world and government come up with to make the place less livable?’”

  • “‘Moving into a $1.3 million house that we saw only on video for 20 minutes and said yes,’ wrote Mike Rothermel, a designer at Cisco who moved from the Bay Area to Boulder, Colo., with his wife last summer. ‘It’s a mansion compared to SF for the same money.’”

  • Mr. Boydas said he hadn’t even known about the taxes [in Texas]. “‘I run payroll for myself, and when I saw zero, I called the accountant like there’s an error — there’s no tax line here. And they were like, Yeah there’s no tax.’”  READ MORE


Episode 44: How Do I Manage My Managers? This week, responding to a question from a listener, Jay Goltz, Dana White, and Laura Zander talk about managing people. Jay offers a four-step plan that starts with making sure you’ve hired the right manager: “Anytime you ever hear anyone complaining about their employees, it's a bad manager.” Laura talks about coming to the realization that her staff is not where she thought it was—and how that’s playing into her recent anxiety attacks: “So now, I’ve got anxiety about my anxiety.” Plus: When did you know you had a real business? And Dana’s getting married!