Archive for category: General

Some of you reading this article are old enough to remember that there was such a thing as a video rental store. Those who don’t remember such businesses (or perhaps didn’t know such strange things existed) certainly knew of Redbox’s existence. But they may not have known that the parent company for this once booming business recently declared Chapter 7 Bankruptcy. It might be useful to see how this once-successful business didn’t go out with a bang, but with a whimper.

How It Started

There’s a lot to love about the Redbox startup story. It was initially developed in Chicago in the early 2000s as a simple 24/7 kiosk strategy for McDonald’s to provide a “vending machine” for fresh milk and other products. By 2004, McDonald’s had decided to use the kiosks to rent DVDs, and they implemented a “return anywhere” policy which means you could rent from one kiosk and return it at a different location, sometimes many miles away.

By 2005 Coinstar bought 47% of the company for $32M, a position they later increased to 51%, then the remaining 49% by early 2009. Traditional brick and mortar video rental stores were closing at a very high rate, but Redbox easily moved into existing retail locations like supermarkets and easily gained market share.

In 2009 Redbox dealt with a challenge from the studios, who wanted to put a 28-day waiting period on their movies going to Redbox to give a bigger boost to potential DVD sales. Redbox went to court, in the meantime buying the films at big box stores like other consumers, except they turned around and rented those films out. The legal tussle ended up positively for Redbox as it signed lucrative distribution deals with several studios for the rights to purchase and rent new-release films, and in the end, with both sides respecting each other a bit more, Redbox agreed to the 28-day period for some studios, a 7-day period for others.

By late 2010, the company hit its one billionth rental, and as of mid-2011, 68% of the US population was living within a five-minute drive of a Redbox kiosk. Those kiosks accounted for over a third of the disc rental market in the country. Later in 2011, Redbox added video game rentals. At its peak, in 2013, Redbox rented more than 770M items, accounting for 50% of DVD rentals in the US.

The Decline

By now you have guessed what arrived that ended the good times for Redbox: streaming. Widespread high-speed internet was necessary to lead this change, and by 2016 the parent company was shopping for a buyer. It ended up being sold, and Redbox was split out as a separate operating company.

In 2017 Redbox tried to get into the streaming market themselves which accounted for a brief bump in revenue, but instead of repurposing their kiosks and capitalizing on their brand, which didn’t only have to be associated with movies (they had already successfully extended to video games), they tried to go full into the movie business, underestimating just how much that would cost. Mistakes included:

• Acquiring the rights to an independent film for a 90-day release period, marketing the movie as the first “Redbox Original.”
• Forming a film and TV series production division called Redbox Entertainment
• Creating Redbox Free Live TV, an ad-supported streaming television service

Things only got worse, and by 2022 Chicken Soup for the Soul Entertainment (which operated Crackle and other online video ventures) acquired Redbox for $50M in stock and assumed $325M of Redbox’s debt.

The End

That huge debt had come from Redbox, due to a cash crunch, refusing to pay its bills. The new acquirer didn’t have free cash to acquire new movies, and a death spiral ensued. By June 2024 Chicken Soup for the Soul Entertainment filed for Chapter 11, amending to Chapter 7 the very next month. As of July 2024 Redbox’s online streaming and mobile app ceased functioning, but many of the remaining kiosks have been taken over by hobbyists who are keeping the machines going by using technical assistance available on the web.

Takeaways

It may be easy to play Monday-morning quarterback, but if Redbox had called us in 2013 at the height of its powers and asked what to do, here are some things we may have said:

• Most businesses don’t ever plan to be the “next big thing.” The minute you become that next big thing, you should be looking at when that run might end and sensible pivots that could be executed without major capital investment. Getting into the movie business was a stupid idea and the majority of their board should have known better.
• Technology changes every business. We always remind sellers that they need to talk about how technology might transform the business they are trying to sell so that buyers can better understand what they are getting into. The company renting more movies than anyone else should have seen that they couldn’t compete with streaming, which cut out the “trip to the store” behavior they had used for so long. They could have used their well-known and trusted brand to offer almost any other product other than the declining physical media that they defiantly kept pushing.
• Pay your bills. By the time the bankruptcy hit, CVS disclosed that it had not been paid any fees since 2002 and was owed over $420,000 in back payments. CVS had even canceled its deal with Redbox, but Redbox refused to remove their kiosks (to be fair, they didn’t have the money to fund those removals). Without proper cash flow, Redbox couldn’t add new movies, which only exacerbated their woes.

Alas, Chicken Soup ended up not being good for the Redbox soul.

“The most important thing to do if you find yourself in a hole is to stop digging.” – Warren Buffett

The Oracle of Omaha, Warren Buffett, is one of the most revered investors in the world. His oversight, with the addition of Charlie Munger’s advice, has led Berkshire Hathaway to be a company worth almost one trillion dollars in net value.

While his quote from above suggests that he believes in calling it quits when you know you have a loser investment, he also regularly cautions any investor to invest for the long term and be vigilant through the down times.

So what is the right approach for someone who has an investment that is currently underperforming?

Well, if it is December, tax-loss harvesting may be the best way for you to accommodate both approaches while staying ahead of the government’s taxation requirements and winning in April through actions made in December.

What is Tax-Loss Harvesting?

Tax-loss harvesting essentially means selling off a bad investment to offset the tax liability of positive investments you have made during the current tax year. The spoils of good investment benefit you, the investor, but the government also sees the capital gains as an opportunity to add to their coffers.

So when you have a win in investing, you need to look for ways to keep those gains to yourself for further investment or strategic use. Taking a stock that is currently operating at a loss, and selling it to offset your gains from other stocks, is the basic reason behind tax-loss harvesting. Besides reducing your taxes, tax loss harvesting also frees up cash so you can buy new assets that may be more likely to generate positive performance. Just make sure you don’t invest in something that only you love.

Some basic rules around tax-loss harvesting stipulate the timeline within which you can redeploy the money from the losing stock sale, or prohibit you from re-buying the same sold stock. You also have to be careful about buying almost identical stocks as those which you have sold.

Who Benefits?

Anyone who invests and sees losses, as well as gains, can benefit from tax-loss harvesting. While those in higher tax brackets stand to benefit more from this practice, everyone should take advantage of this legal opportunity to reduce the amount of taxes they may owe the government, assuming their situation meets the appropriate requirements.

This unique act shouldn’t be used simply as a means to save taxes owed, however. There is no point in selling off a stock that is expected to rebound or outgrow your initial investment, just to offset gains from another stock. A prudent investment strategy should be adhered to, and harvesting should only be set in motion when the benefits outweigh any potential negatives of your strategy.

When Should You Act?

To take full advantage of the tax-loss harvesting opportunity, you need to make sure that any sales of investments that have resulted in a loss are complete before the end of the current tax season. This is the only way to offset gains made in the current tax season, with your losses.

Additionally, you will need to know when the stocks of both your gains and losses were purchased. This is so you can confirm that your capital gains are accurately calculated, and then offset your gains accordingly with your losses. It should be noted that a business owner, who takes advantage of tax-loss harvesting, can potentially use a minimal amount of those losses toward their personal tax liabilities, once all potential uses for the business liability have been exhausted.

Again, you should make sure that your approach doesn’t run afoul of your current investment strategy, but down markets can provide the best times to take advantage of tax-loss harvesting. You can maximize the capital you have to reinvest in other stocks or assets by purchasing the ones with the most upside, while at bargain prices.

We prefer to help you buy or sell businesses at Apex, instead of stocks. But we know great people who can help guide you in harvesting your tax losses.  If you need a referral, give us a call and we’ll connect you.

There are times when we read an email and think, “I could explain this in just a few minutes instead of replying back with a long email.” Or you know that vocal tone and body language will help a message land properly, but can’t do that in an email. There are video messaging apps that can help. One of them is Loom.

What’s Loom?

Loom is a video messaging tool that helps you get messages out through instantly shareable videos. 

You can record your camera, microphone, and desktop simultaneously. Your recordings are then stored in the cloud with trackable views.

You can use web or app-based versions of the software to do the recordings and basic video editing tools are available to you if you want to trim a video for its best look and feel.

Why Use Video Messaging?

There are lots of use cases for video messaging, and the more you use it, the more possible uses you’ll discover in your own organization. Here are some ways you can use Loom and other similar apps:

• Video SOP — one of the reasons that SOPs don’t get written is because people are intimidated/discouraged by writing down a lot of text. But for whatever reason, people are less intimidated by having a video conversation. You can use Loom to create explanatory SOP videos what can help onboard new employees and provide a respository of knowledge in any position.
• Email reply — as noted above, it’s acceptable to reply to an email with a video message. In fact, customers will often be impressed that you recorded something for them, even though it may have taken you less time to do so than to write an email. Somehow recorded video conveys more “work.”
• Troubleshooting — when particular problems occur frequently enough that everyone in your office knows how to answer them for clients, it might be worthwhile to record a one-time video explaining how to solve the problem. Now your team will gain back future time by sending them this video (and others like it).

Interaction

One of the ways text messaging has evolved over time is allowing for reactions to individual messages. We can “thumbs up” a particular message without replying, allowing the party on the other end to see our thoughts without our having to write them. 

Loom also features this feedback feature on its videos. Users can react with emojis at any time during the video, and/or send direct email feedback on specific timestamps.

Those who like to speed up their videos can take comfort in the fact that Loom allows you to speed up (or slow down) the video to a speed of your choosing (within reason…10X isn’t available!).

Videos can also be password protected and Loom offers integrations with other tools like Slack to make access even easier.

Prefer phone calls to emailing? We’re here for you! Give us a call today to talk about how we can help you with a business transaction.

You may have heard about NFTs in the news at some point in the past year.  These digital assets are in their first era of growth and exposure and big brands like Nike, Gucci, and Sotheby’s are jumping in on the fray.  We thought it would be worthwhile to give our readers a simple explanation of what NFTs are and how brands and businesses are taking advantage of them.

The Blockchain

NFT stands for non-fungible token.  Money, being interchangeable and indistinguishable, is an example of a fungible asset.  Your house or the Mona Lisa, for example, are unique and irreplaceable, making them non-fungible.  

NFTs are created on a blockchain.  The most popular blockchain that most people know at least something about is Bitcoin (BTC), which is primarily used as a store of value.  But many other blockchains have other use cases.  Ethereum (ETH), for example, rose to prominence for its use of smart contracts, which disintermediates buyers and sellers in various markets.  ETH is also the most popular blockchain for NFTs.

What Can Be an NFT?

Pretty much anything can be an NFT.  Let’s start in the physical world with the Mona Lisa, which we mentioned already.  While it’s true that you can go to see the Mona Lisa in Paris at the Louvre, you can also see it on your phone.  You can print it out, frame it, and put it on your wall.  You can make it the desktop wallpaper of your computer.  But you’ll never own it.

The Mona Lisa has value because we as a society have assigned it value and because most of us in the world live in economic systems in which the owners of private property can sell items of value that they own.  But since the Mona Lisa might be too extreme of an example, think of baseball cards.

Baseball cards are made of cardboard.  They were printed by computers, not designed by a famous Renaissance artist.  They are not inherently useful.  Yet our society still assigns them value, and they change hands to the tune of millions of dollars per year (if not more).

NFTs take these physical-world principles and put them into the digital space.  Think of them as digital certificates of authenticity which show the chain of custody all the way from the original creation of it on the blockchain (known as “minting”) all the way through every buyer until it’s ended up in your hands.  

Examples of Recent NFT Transactions

Yeah, okay, but who would do this, and what would it be for, you might ask.  Great question.  Some recent examples include:

• Jack Dorsey selling an NFT of his first tweet on Twitter for $2.9M (don’t worry, he donated all the proceeds to charity)
• Tom Brady creating an entire platform called Autograph which sells moments and autographs from sports legends, including Tiger Woods, Wayne Gretzky, and Naomi Osaka.
• The NBA creating a marketplace called Top Shot that sells all sorts of moments.  An NFT of a LeBron James dunk sold for just under $400,000 USD earlier this year.

Examples of NFT Use Cases

But NFTs aren’t just for global megastars and sports leagues, they can be created, bought, traded, and sold by anyone.  Foundation and OpenSea are examples of large marketplaces where NFTs are minted and sold everyday.  A fancy digital iteration that doesn’t exist in traditional art?  You can create a setting when minting an NFT that triggers secondary revenues to the original minter of the NFT everytime the NFT changes hands.  

Band Kings of Leon included software in an album they released as an NFT which allows the current holder four front row seats to every tour for life.

Nike recently filed a patent to allow for blockchain authentication of ownership of physical sneakers.

Perhaps the most fun and interesting use case of NFTs currently is in the Zed.run virtual horse racing marketplace.  You can buy virtual horses as NFTs and then run them (and win crypto) in various races which are running 24/7.  Seriously.

Bubble?

While some might throw up their hands and say they simply don’t understand, there are lessons to be learned (and money to be made) even during bubbles.  It’s too early to tell whether NFTs are a long-term trend or just a modern day version of Dutch tulips.  

The IRS has not yet offered guidance on them, but if you buy an NFT (which is a crypto asset) using crypto, the IRS has offered guidance on that, and as such it falls under capital gains (if your NFT appreciates).  Some speculate that the IRS may choose to classify it under the collectibles bracket, which is at an even higher rate than the current capital gains tax.

What’s clear is at the moment NFTs can be created, made scarce, bought, sold, and even serve as a source of residual income.  That makes them just like many other collectible objects which you may not care about or even understand the market for.  But hopefully after reading this you understand NFTs better, even if you have no desire to ever own one.

We don’t have any NFTs for sale here at Apex, but we have plenty of businesses that will be great assets for years to come.  Give us a call if you’d like to check a few out.

A provision to gradually increase the federal minimum wage to $15/hour was recently removed from a budget reconciliation bill in Congress.  While that pay increase doesn’t look like it will be coming at the federal level this year, the debate around the topic isn’t going away and has already led companies like Amazon and Target to announce their own moves to at least $15/hour for all new employees.  In the same vein, the State of California has announced a state minimum wage of $15/hour effective January 2022.  Whatever the starting pay is for your employees, you should know and understand the talking points of this debate.

Stats and Guesses

As part of the legislative process, the Congressional Budget Office (CBO) put out some projections on the effect of the move toward $15/hour:

• The cost to the government would be $54 billion dollars over a ten-year period
• 30 million Americans would get a pay raise
• Of those 30 million, 900,000 would be lifted out of poverty
• Possible job cuts as a result of this could be close to 1.4 million workers (.9%)
• Labor costs/Purchasing power (depending on your perspective) would increase by $333 billion over the same ten-year period

While the CBO is a nonpartisan body, that doesn’t shield them from criticism, and these numbers received their fair share of disagreement from both sides of the aisle.  What is clear already is that more than 29 states have minimum wages that are higher than the federal minimum wage, which was last adjusted in 2009 to $7.25/hour.

Your Business

We’ve talked before about different ways to financially reward employees and why hiring for cultural fit is an important part of making sure that your team isn’t only money motivated.  While not every business has the resources to simply double starting pay, and while the vast majority of our clients don’t have a single team member on minimum wage, it’s important to realize that such a dramatic change will affect everyone and every business.  Questions you should be asking include:

• Do any of my key vendors employ minimum wage workers?  Have they forecast how our prices would change if that minimum wage would change dramatically?  Do I have contingency plans in place in case they decide to cease operations?
• Using answers from the first set of questions, how would you deal with increased costs?  Would you pass that on to the customer?  If so, what percentage?  How does your business change as a result?
• How closely are the lowest-paid members of your team compensated in relation to the minimum wage?  What adjustments would you need to make to their salaries as a result?

Sometimes we can forget that changes we don’t think will affect us or our businesses will indeed affect us and our businesses, and in profound ways.  Rather than passively wait for changes to occur, the best business owners proactively attack challenges before they become problems.

Are you and your team happy with the compensation plan you have in place?  Have you thought about that plan in relation to a possible future sale?  Give us a call to talk about it.