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Nasir and Matt talk about how a businesses based on a fad can succeed and answer, “I don’t have money to pay for certain services. Can I trade my products for other company’s services?”

Transcript:

NASIR: This is Legally Sound Smart Business.
My name is Nasir Pasha.
MATT: And my name is Matt Staub.
NASIR: And this is the business podcast where we cover business in the news and give our legal twist and also answer some of your business legal questions that you submit, the listener, to ask@legallysoundsmartbusiness.com.
You know, I think I said “business” in that last thirty seconds about 50,000 times.
MATT: It’d be some sort of record, probably.
NASIR: I’m pretty sure. Call Guiness.
MATT: All right. Well, let’s see, we have a story here.
NASIR: We do? Let’s listen! What do we have?
MATT: I don’t know, you’re going to have to help me out with this one because I don’t eat sweets. I don’t eat desserts.
NASIR: That’s true.
MATT: It’s a cupcake-based story.
There’s this company, Crumbs is what it’s called, but it speaks more to fads.
And so, this company, Crumbs Bakeshop, they actually went public back in 2011 because I guess they, you know, it was during the cupcake craze apparently and their stock I think started in the mid-teens and now it’s below 50 cents.
NASIR: Oh.
MATT: And I say “cupcake craze” because that’s kind of what it was. I’m sure you’ve seen this in a bunch of cities. There’s cupcake shops that pop up and have become pretty popular or at least they were popular and who knows whether they’re popular now.
Juicing is really popular right now. There’s a lot of juice places popping up. We have talked about this before – like, the food trucks, that was a big craze. That was a fad.
But this is what I’m getting to. If your business is a fad, what do you do when it’s not a fad anymore?
NASIR: You have to recognize whether it is a fad or not. If it is, then I’d exit as quick as possible.
MATT: Yeah.
NASIR: I wonder if these founders of Crumbs – is it Crumbs or Crumb? I haven’t even heard of them, by the way. I’ve been to a number of cupcake places in my time. It’s not necessarily my cup of tea but I have been there once in a while with family and so forth.
MATT: Doesn’t your Twitter handle say Cupcake Connoisseur on it?
NASIR: Well, that’s true. I do test taste for a number of cupcake companies but, like I said, I got tired of it. I just wonder if Crumbs, after their IPO which just boggles my mind that it actually found a firm that was willing to back such an IPO but anyway, I wonder if these founders actually were able to just exit out of it. Did they lose money? I bet you they got a piece of it and had a successful business and I think it’s time for them to get out because fads are okay. If you’re in business and your product becomes really popular and you think it may go out later, that’s not a big deal. But, if your product is easily to be copied and done by anyone else, then that’s a problem in itself. I mean, a lot of these cupcake guys, I mean, how many did we know – and, unfortunately, I knew a lot – that were all of a sudden selling cupcakes out of the house and selling them to their neighbors and so forth? And then, they wanted to open up a shop and, you know, I’m sure that all the cupcakes are good but, frankly, the difference between the greatest cupcake and a good cupcake is just not there.
MATT: Like I said, this is a tough topic for me because I don’t even eat cupcakes so I don’t know if there’s a big difference.
NASIR: It’s the same thing with those yogurt shops. You mentioned those yogurt shops, right?
MATT: Well, don’t say that in front of my wife because she will strongly disagree with you.
NASIR: Ah.
MATT: There is a big difference between them.
NASIR: No, there’s not. In fact, I’ve had friends that have actually invested and gotten into the industry. I made my opinions very clear about it but, first of all, yogurt shops were a huge thing. It’s not that they’re not anymore but how many of those, anyone in the commercial real estate space knows how many of those shops closed down and how many of those shops are now available for rent. All throughout Southern California is probably the most prominent and these yogurt franchises went like crazy. You’re saying your wife still goes to them?
MATT: She’s downed it back a little bit. When we lived in Northern California – specifically Sacramento – there was a ton of spots. She frequented many different ones. She had her list of favorite ones. To her, there is a big difference. I guess, to some people, there’s going to be a big difference with cupcakes, too, I suppose. I’m pretty surprised that this company went public. I’m looking at their menu now. They have some cupcakes, it looks like some other sweets, and some coffee drinks and things like that. That’s it. And there’s a lot of different locations. It looks like it started on the east coast but this is tough.
NASIR: Yeah, I think they did change the landscape though – the idea of having these boutique places that just sell one thing and they have a nice artsy kind of atmosphere kind of modern design. I don’t think that’s a fad. But, whether it’s cupcakes or hotdogs or peanuts or whatever they’re selling, I think the point is to find a product that you do well and make it unique and just focus on that. I think that’s cool. But scaling up to a huge industry where all you sell is cupcakes or peanuts or whatever, I think it’s just too limiting for a business idea for scaling your business.
MATT: You touched on this a little bit but the smart people are the ones that see this trend or the fad before it happens or maybe at the early stages and early adopters. They get it really quick and then exit before it kind of goes downhill. Those people, they’ve probably done it with a bunch of different businesses. It’s just seeing the market, seeing the landscape, and playing the field, I suppose.
NASIR: I think that’s what people would say about my style in fashion. I tend to be an early adopter – before it becomes a fad – and I kind of ride that cycle up and then move on to the next thing. Those of you that know me, I think everyone would agree.
MATT: Yeah, that’s the first thing I ever noticed about you.
[MUSIC]
NASIR: All right, let’s get to our question of the day. Back to San Diego.
MATT: Yeah, here we are, another food-related question – well, food company.
“I don’t have the money to pay for certain services. Can I trade my products for other company services?”
This comes from an organic food company in San Diego.
NASIR: You know what, I think every company that’s starting out has done something like this. I know I have. I think we’ve talked about this. Providing our legal services in the beginning when we first started out for other business services or products. It was kind of a fun bargain exchange and it’s something that I think is pretty common when you’re first starting out.
MATT: Yeah, definitely. You’ve done it. I’ve done it. A lot of companies at the beginning have done it. You find the right connections. It’s just a smart move because you’re getting something out of it, you’re just doing your craft, so you’re not giving up too much.
I guess this question is product-based so they’re actually definitely having some sort of physical expense. For us, if it’s a service, it’s just opportunity cost. If you’re giving up a product, you do have some money, but it’s still a good idea, as long as it makes sense financially.
NASIR: Yeah, that’s true. There is that if they’re are product, there are hard costs involved. I think I did it when I was getting married. I did a deal for our favors because I got these nice wooden boxes from overseas that were carved nicely and we put some stuff in it or whatever. I don’t remember how much it would have cost but I just did some kind of entity formation. You know, the hard thing is though, how do you handle the taxes with that? You’d know. You’re the tax guy. How do you tackle that issue?
MATT: And that’s the question that I would say 90 percent plus don’t even consider. From a tax perspective, how the IRS views it is I think they label it as bartering and it is still taxable but I can’t say that I know too many people that fall and obviously, first disclaimer, anything that’s income needs to be claimed as income and it needs to be taxed but I don’t think a lot of people even consider this income when they do it so I’m guessing they probably don’t claim this as income.
If you’re trading a service for a service, it’s kind of hard to track.
NASIR: Yeah, how do you value it at and so forth? That’s when you bother your CPA or tax preparer and say, “I have an issue for you, can you look this up?” because I think there’s even people that participate in bartering programs where people are just getting together and it’s just some kind of exchange. I’ve never joined one myself but I think that’s pretty common for small business as well because it’s a good way to get your services and have a kind of an organized fashion to do that. But what’s interesting is the IRS even has a particular form for those exchanges for those guys to file probably to report some of those transactions.
MATT: I think any CPA that we would ask would say you need to do that but CPAs always give advice and people don’t necessarily follow it.
NASIR: That goes with everything, especially lawyers as well.
MATT: I mean, I discuss tax things with people pretty frequently and people always ask ridiculous questions and I’ll say, “Look, you always need to pay tax on anything that’s income.” That’s always the first thing I tell them. At the end, what I say is – because I’m not preparing tax returns and so I say – “What you choose to do is your choice but I’m going to tell you you need to pay tax on it,” and it’s up to them whether they actually do it.
NASIR: But, to answer your question, you can but it just might be an issue when it comes to tax time, figuring that out.
MATT: I think we agree, though. It’s a good idea in general because, most likely, what you’re going to get is going to be, in theory, at a discount of what you might pay, if that makes sense. It made sense it my head.
NASIR: No, absolutely, but also how you value it and so forth. I think it makes it kind of fun because a lot of times people aren’t using hard cash to get that and I think you can really determine how people value your services by what they’re willing to give you for it.
MATT: Yeah, that’s true, that’s another good point.
NASIR: Well, okay, that’s our episode of Legally Sound Smart Business. Let’s see. I think we told them where they can send their questions in but, if you forgot and didn’t write it down like I told you to, it’s ask@legallysoundsmartbusiness.com.
MATT: Most people listen to the podcast with a pen in hand.
NASIR: Well, yeah, you’ve got to take notes throughout this thing because, otherwise, how are you going to know if we made any mistakes if you’re not going to take notes and research.
MATT: The fact that someone’s either listening to this on their phone, tablet, or PC would mean they probably should just go to their email to do it instead of writing it down but that’s all right. Some people like the pen version. Since it is Friday, we should also have people, Friday is the best day to give iTunes reviews.
NASIR: Yeah, I’ve heard that before. It cleanses your soul and helps with digestion and makes you have a good weekend as well. I read an article about that.
MATT: Yeah. So, if you have a minute, check out our podcast on iTunes and leave a nice little review.
NASIR: Leave a few words. Tell us about how you liked the show.
MATT: I could read through the reviews. There’s some nice ones on there – some good stuff people have said.
NASIR: Oh, cool. What about the bad ones? Have you read those yet?
MATT: No, there aren’t any bad ones.
NASIR: Oh, okay. It was a different show I was reading.
MATT: Yeah.
NASIR: Well, thank you for joining us and have a good day!
MATT: Keep it sound and keep it smart.

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