The Weekly: Edition #3 - July 26, 2019
Here at Permanent Equity, we're in the business of helping small to mid-sized business owners run, grow, and transition ownership of their business more effectively. With that goal in mind, we are proud to announce The Weekly, a weekly newsletter for operators in the trenches.
FOOD FOR THOUGHT
How I spotted a fraud before it was too late (Gary Mishuris)
This is the story of a how a young analyst discovered financial fraud at a commodities firm, but there are deeper lessons to be learned.
1) Don't believe what people say - pay attention to what they have done.
Listen carefully to what potential customers, vendors, suppliers, and partners have to say. As Warren Buffett is so apt to point out, successful business relationships depend on intellect, energy, and integrity. The last piece, integrity, underscores the other two and is the most important prerequisite for long-term success for both parties. Do your research and ensure that words match actions. On the flip side of this, be the partner that you would want in any relationship and DWYSYWD (Do What You Say You Will Do).
2) Be wary of situations that are all story and no numbers.
SMB owner-operators take significant risks with every decision they make - from hiring to partnering to sourcing from vendors - and each risk taken must be supported by solid evidence that substantial performance will follow. Whether this is on-time delivery, dependable employees, or reliable sources of capital, due diligence is key to maintaining a stable operation from all sides of the table (capital, labor, suppliers, and customers).
3) Context matters.
"He inquired about how the investor day went. I answered that I didn’t learn much, other than that the CFO had just bought a large new house in Florida. The portfolio manager’s smile and relaxed posture immediately disappeared. With a furrowed brow he asked me to confirm: in Florida? Yes, in Florida. Why, was that a particularly poor state to purchase a house in? His reply sent shivers down my spine, 'Don’t you know that in Florida they can’t take away your primary residence, even if you go to jail for fraud?'"
Perhaps business was just booming. Or perhaps, given the business was actually generating no cash at all, management was simply extracting what it could before the house of cards collapsed. In any scenario where capital, operations, and relationships are at risk, it pays to know all the facts. Context matters.
OPERATIONS
The Partnership Charter: How to Start Out Right in Your Business Partnership (or Fix the One You're in) (BMC Associates, David Gage)
+ David Gage has seen many partnerships fail through the years, which prompted him to write a book on the potential pitfalls and problems associated with business partnerships. Highly recommended book from the Permanent Equity team (Amazon link).
A case study of the Starbucks app success (The Manifest)
+ Starbucks has shown with its massively successful app that technology can be a powerful tool for learning more about your customers, maintaining customer loyalty, and increasing convenience.
The retailer's guide to selling on Amazon (Modern Retail)
+This report guides retailers through the ins and outs of selling on Amazon as well as some of the nuances of the platform you should know.
Why now may actually be the best time to source from China (Sourcing Journal $)
+ "Talk has surfaced among apparel and footwear manufacturers alike, about Chinese factories offering double digit discounts on product, lowering prices by 25 percent to cover the equivalent threatened U.S.-China trade war tariffs, bending on payment terms—whatever it takes to retain sourcing orders for U.S.-bound shoes."
MONEY
A new small business burden aimed at terrorists and drug dealers is hitting small hard (WSJ $)
+ Congress may impose additional reporting requirements on small businesses (fewer than 20 employees or less than $5MM in revenue), with the stated goal of preventing money laundering by drug dealers and terrorists. The practical effect would more likely be to cause small businesses to spend more money on legal fees for compliance purposes.
Amazon offers sellers a leg up, but with a catch (WSJ $)
+ “Amazon.com Inc. is offering independent merchants on its platform marketing support, product reviews and prominent display. The catch? Amazon gains the right to purchase a merchant’s brand at any time for a fixed price, often $10,000.”
DEMAND
The restaurant owner who asked for 1 star Yelp reviews (The Hustle)
+ Sometimes, you have to take destiny into your own hands as a small business owner. This is the story of one man who was tired of the 'mafia-style extortion' of Yelp's review system and decided to fight back.
Google adds 'Request a Quote' to business listings in search results (Search Engine Journal)
+ Google added a new feature to its search results which could benefit small businesses with just the click of a button. If you have a Google business listing, this could be worth investigating.
HUMAN RESOURCES
Gusto recently raised $200M to help small and medium-sized business owners with payroll (TechCrunch)
+ Gusto is out to solve small and medium-sized business headaches around payroll and benefits. With over 100,000 SMB customers, they may be worth researching depending on what your needs are.
WEIRD
Why is airport food so expensive? (The Hustle)
+ This illustrates the high-cost structure of operating a retail business inside an airport: percentage-of-sales leases, high security costs, and high employee wages all add up to prices that seem monopolistic for consumers in airports.
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