Why Would You Want to Own a Business?
In our latest podcast episode, the owners discuss the long hours, unexpected risks, and disappointing returns that can come with business ownership. So why do it?
Here are today’s highlights:
Luxury retailers are asking why they’re making their landlords rich.
It took just one click to hack an Austin accounting firm. Here’s what the firm did next.
The FTC is expected to ban non-competes this year.
In India, there’s a bitter dispute over which restaurant chain deserves credit for butter chicken.
THE 21 HATS PODCAST
This week, Shawn Busse, Jay Goltz, and Jennifer Kerhin respond to a somewhat depressing view of business ownership offered by an investor who buys businesses for a living. That view, essentially, is that for most owners, building a business is a daily knife fight of long hours, unexpected risks, slow growth, and meager returns. In this episode, I read most of the investor’s observations to Shawn, Jay, and Jennifer, and get their reactions, which hit upon a bunch of issues that are not widely understood—including how fast growth can destroy a business, how even a profitable company can go bust, and why a good metric to assess the health of a small business might be how many people have been crying in the bathroom this year.
While Shawn, Jay, and Jennifer disagree vehemently with a few of the investor’s assertions—”Kiss my ass!” says Jay in response to one—they do acknowledge that he makes a lot of good points, which leads to an obvious question: Why would anyone do this? Why would anyone subject themselves to this kind of life? As you might expect, Shawn, Jennifer, and Jay have a response to that as well.
You can subscribe to the 21 Hats Podcast wherever you get podcasts.
Luxury retailers are increasingly choosing to buy out their landlords: “Luxury’s real-estate shopping spree shows that retailers are using their considerable cash to free themselves from the control of landlords and plant their flags on streets where they want a long-term presence. ‘The rents that the luxury retailers were paying on Fifth and in other prime locations were simply astronomical,’ said Eric Menkes, co-chair of leasing for the New York-based law firm Adler & Stachenfeld. ‘There comes a point in time when these retailers looked in the mirror and said, Why am I making my landlord rich?’”
“High-end retailers renewing their leases are often subject to the biggest rent increases, because they don’t want to leave well-known, successful addresses and pay for expensive build-outs at new stores. ‘You don’t want to give up that location,’ Menkes said. ‘And your landlord knows that.’”
“While real-estate purchases so far appear concentrated in the most exclusive shopping corridors, luxury retailers are also signing leases in new markets and for bigger footprints to accommodate their swelling collections as well as new offerings such as restaurants and bars.”
“This dynamic could mean luxury retailers are competing mainly against each other for real estate at the most desirable locations.” READ MORE
Here’s how one click led to the hacking of an accounting firm in Texas: “A part-time employee at Salling Madeley, a full-service accounting firm serving clients throughout the Austin area, received a reminder to renew her password. In the middle of a busy tax season, it would only take a few seconds—and just one click. The email looked legitimate and hit all the right notes. ... Shortly after, leaders in the firm received a notification that certain documents had been uploaded and downloaded. That set off alarms for Catharine Drake Madeley, who immediately recognized that the part-time employee did not work on those files.”
“The firm shut down the employee’s access to email, but not before the part-time employee had received an email asking her to reset her password to the firm’s portal, allowing the hacker to gain entry. That access, too, had to be shut down. But the damage had already been done—they’d been hacked.”
“A flurry of activity followed. The firm contacted their information technology vendor and their insurance company. Fortunately, Drake Madeley says, they did have cyber insurance coverage. They also reached out to local law enforcement, the Federal Bureau of Investigation, and their IRS stakeholder liaison. They also called their lawyer.”
“Eventually, they made the calls they dreaded the most: notifying clients. The forensics team had carefully combed through the firm's files and cross-checked manual hits to data sets. They had a list of clients that the hacker had potentially accessed. And they had a list of taxpayers that had not yet filed returns. That combination was important because hackers targeting taxpayer data tend to move quickly to file to claim fraudulent refunds.”
“Drake Madeley is thankful that she opted in on cyber insurance since it covered many of the expenses associated with the breach. Coverage had been offered through her insurance provider, and she said yes. It saved the firm potentially hundreds of thousands of dollars.” READ MORE
A luxury shopping center in Florida wants to build affordable housing: “In Bal Harbour, Fla., an oceanside village north of Miami Beach, a luxury mall says it wants to help tackle one of the nation’s — and Florida’s — most intractable problems: a lack of affordable housing. It is an unexpected move for a retail temple where Gucci, Chanel and Rolex are on offer. Affordable? Here? But in a rare instance of bipartisan agreement, the Florida Legislature passed a law last spring intended to encourage projects like the one that the owner of the mall, Bal Harbour Shops, has in mind. Called the Live Local Act, the law allows developers to bypass certain local zoning rules and to qualify for tax breaks if their projects include enough ‘workforce housing.’”
“The law resembles others that states have passed in recent years curbing local governments’ ability to block new projects as rent burdens escalate; the hope is to speed construction and backfill what has become a national housing shortage. But around the country, local officials are pushing back.”
“For 40 years, the mall’s owner, Whitman Family Development, has wanted to build a hotel alongside the shopping center, on Collins Avenue, the village’s main drag. Neighbors and elected leaders repeatedly rejected the idea. But when the new housing law passed, the owner saw a way in.”
“After the application was filed, infuriated residents packed Village Hall to decry the project. The Village Council, feeling ambushed, vowed to try to stop it. Then, last week, the mall’s owner sued the village, in what seems to be the first instance of a developer asking the courts to enforce the new law.” READ MORE
The FTC is getting ready to ban non-competes: “The FTC’s proposed rule — first issued in January 2023 — would ban noncompete clauses and rescind those currently in effect, a rule that would impact roughly 30 million workers, according to the agency. The rule would apply to independent contractors and anyone who works for any employer, paid or unpaid, according to the FTC. The agency estimates the proposed rule would increase American workers’ earnings between $250 billion and $296 billion per year. While the FTC said the rule did not extend specifically to nondisclosure agreements, it would apply to any NDA broad enough that it would effectively preclude a worker from working in the same field as their former employer.”
“The rule exempts noncompete clauses that stem from a person willingly selling a business entity or otherwise disposing of their ownership interest in a business entity, the FTC said. But, Weibust said, the mergers and acquisitions exemption is extremely limited, as it only applies to sellers who own 25 percent or more of the equity in the business, while the vast majority of larger businesses have owners that retain less than that.”
“The Federal Trade Commission could issue its final rule on non-compete agreements in a matter of months — and experts expect it to become final sometime in 2024.” READ MORE
In Boston, the liquor license system is stacked against small businesses: “Jarvis Adams, the Lobzter King, got his start grilling for his friends — lobsters rubbed with olive oil and his secret signature seasonings. They were a hit, and that gave him an idea: I could do this for real. So two years ago, he started doing pop-ups at Boston-area breweries and distilleries, then temporary kitchen takeovers at friendly restaurants, then catering for DraftKings. Now, he’s going all in on his first brick-and-mortar restaurant.”
“They’re planning to bring in new furniture, 120 seats inside and another 40 to 60 seats on two outdoor patios. They’re aiming for a spring opening, and everything is on track — with one big exception: a liquor license.”
“That’s central to The Mix’s business plan, Faulk says. They want to hire a mixologist ‘so we can offer new and innovative drinks and beverages, recognizing that we want to attract a professional crowd.’ But getting a liquor license is incredibly difficult in Boston — unless you happen to have a half-million dollars to spend.”
“Thanks to a 91-year-old state law, Boston has been at or near its quota of full liquor licenses — currently around 820 — for many years. So for restaurants and bars looking to open in the city, existing licenses sell in a private market that set new price records in 2023, when sales ranged from about $400,000 to $600,000.” READ MORE
At a food cart in Lower Manhattan, the price of chicken over rice has gone from $6 to $10 in four years: “Like thousands of the city’s mobile food vendors, [Mahmoud] Mousa cannot get a permit for his cart, the Halal Plates. A longstanding cap limited the number of permits to 5,100, before a 2021 law began allowing for 445 new permits a year for a decade. So far, the city has issued 71 new permits. Almost 9,500 people were on waiting lists in January, according to the city’s health department. A spokesman said it had released 1,074 applications — a permit prerequisite — since the law was enacted, but most applicants had yet to complete the process. While he waits, Mr. Mousa said he and his business partner pay $18,000 in cash every two years to rent their permit from a Bronx cab driver who Mr. Mousa said obtained it decades ago for a few hundred dollars.”
“Running the cart includes tracking dozens of expenses, starting with saving $750 monthly for the permit. The business, which relies on students and office and construction workers, operates in two 10-hour shifts, from 8:30 a.m. to 4:30 a.m. In the winter, Mr. Mousa and two cooks (paid $150 a day) work Wednesday to Sunday; after Easter, they work every day.”
“Mr. Mousa also pays $450 monthly for space in a garage and commissary kitchen in Red Hook, Brooklyn, to store the cart and ingredients. He spends $30 a day for a worker to clean the cart, and $65 to have a driver haul it to and from Lower Manhattan.”
“In the colder months, the business might make $500 daily, Mr. Mousa said — a net loss, but enough to survive until the summer, when sales range from $700 to $1,400 a day. Chicken over rice is the most popular dish, accounting for two-thirds of revenue.” READ MORE
In India, there’s a rollicking dispute over who invented butter chicken: “The culinary clash has risen to the Delhi High Court and is transfixing the nation, with debates rocketing through social media and TV stations keeping a rapt public abreast of the squabble. ‘Who stole my butter chicken?’ blared one local headline. Another dubbed it ‘a delicious dispute.’ The showdown has roots in a storied New Delhi restaurant called Moti Mahal. It was founded in 1947, and known for serving the first butter chicken, which features tandoori chicken cooked in a tomato-based sauce with butter and cream.”
“The dueling restaurateurs are the adult grandsons of the original partners of Moti Mahal. On one side is Monish Gujral, 58, who operates a franchising chain, called Moti Mahal Delux, with about 150 restaurants worldwide, including in Manhattan, North Carolina and throughout India.”
“Last year, according to Gujral, he bristled when he saw the owners of a newer restaurant chain, Daryaganj, appear on the TV show ‘Shark Tank India,’ seeking investment to expand their chain. In the episode, Raghav Jaggi, the 43-year-old founder of Daryaganj, credits his own grandfather, who was also a partner at Moti Mahal, with inventing butter chicken.”
“Adding to the confusion, both grandfathers had the same first and middle names: Kundan Lal. News stories occasionally referred to them as “the two Kundan Lals,” and in their later years, the mustachioed men could have passed for brothers.”
“Pankaj Vohra, 69, a veteran journalist in New Delhi, recalls his father taking him to Moti Mahal as a young lad. He remembers Gujral’s grandfather, the bon vivant host, welcoming guests with a glass of whiskey, while Jaggi’s grandfather worked quietly in the background. The two Kundan Lals were extremely close, he said, although their partnership ended in a dispute.” READ MORE
THE 21 HATS PODCAST: DASHBOARD
You Can Just Ignore Those New 1099 Rules: That, at least, is what Gene Marks is planning to do. Gene says the new rules, which are scheduled to take effect in March, will have a profound impact on many businesses, including his—if they are actually enforced. But Gene’s not convinced that’s going to happen. Before you relax, though, he’s even more worked up about the new guidelines coming from the EEOC regarding harassment in the workplace. Very few businesses, he says, are prepared for what’s coming. One warning: when Gene talks about regulation, his language tends to get a little salty.
You can subscribe to the 21 Hats Podcast wherever you get podcasts.
Thanks for reading, everyone. — Loren