Best Of The Second Hundred Episodes! [e201]

Full Podcast Transcript

NASIR: All right. Welcome to our 200th plus one episode. Wait.

MATT: So, the idea was, this is #201. The idea was you can’t do a best of the first 200 if the episode is #200. That makes sense, right?

NASIR: Well, I was also thinking, like, is it one of those things where 201 is the 200th episode because we didn’t start at episode 0?

MATT: That’s not how math works.

NASIR: That’s not how math works. Well, I was thinking, you know, the year 2000 where people talked about the new millennium and, like, never mind, because there was no year zero. Anyway, welcome to our business podcast where we cover business in the news and add our legal twist to these business news items that we cover, and we’ve done it about a couple of hundred times minus a couple of episodes here and there which were also recap episodes, right? Yeah, I think we’ve done one recap episode, right?

MATT: Well, we did one on #20, I believe, because we were both gone or something.

NASIR: Yeah, we were both gone.

MATT: Then, we did one, I think 20 and 100 and then this one. There might be… I don’t remember.

NASIR: Like, a true recap like a replay, kind of like a TV show where they just splice a bunch of clips together. That’s basically what we’re going to do.

MATT: Ah, yeah. One, at most two, but definitely one because I remember doing it but, yeah, at most, two of them.

NASIR: The first one, yeah, I was out of town and you just did the intro for it. It was like episode 20 which I think we should do. We should do it for this 201st episode and then again 20 episodes later.

MATT: Just do a recap every 20 episodes. Well, that’s why the episodes are longer too. It’s made a little bit more sense.

NASIR: That’s also true. Well, anyway… what we have coming up are basically the most popular episodes that we’ve had in the last hundred episodes, I think, the best of, right?

MATT: Yeah, and I can probably give you a summary right now. it had to do with Uber, independent contractors, The Office, and pizza.

NASIR: And Yelp.

MATT: And Yelp.

NASIR: Yeah.

MATT: Yeah, those five things.

NASIR: All right. Well, enjoy the show!
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MATT: We have a great episode today. We haven’t had a guest on in a while – at least it seems like it’s been a while – but we have Mark Faggiano with TaxJar, the founder and CEO of Taxjar. Did I get your name right, Mark?
MARK: You did. Nice work. Good to be here, guys.

MATT: Well, yeah, thanks for being here.

NASIR: Yeah. So, taxjar.com is a company in San Diego but what’s interesting about what they do – and, obviously, Mark can speak more of it – is on sales tax and dealing with, especially from a small business perspective doing online e-commerce, I know a popular business that seems to be kind of sprouting up probably in the last few years – and, Mark, you can probably correct me if I’m wrong – is these kind of online sellers that are using Amazon to fulfil its shipment and basically use a shopping cart instead of setting up their own website. What about the sales tax implications in that? I think sales tax in general is just a mess of laws because you have to deal with how each states applies different taxes, depending upon where it’s being sold and who it’s being sold to. Mark, this is something you deal with every day, right?
MARK: Yeah. So, to call it a mess is really an understatement. There’s probably some more words that you don’t want to use to better describe it but you’re exactly right.
So, you know, five years ago, if we were having this conversation, if you talked to an online seller, they would probably say, “I’m an eBay seller” or “I just sell on eBay” and what’s really happened and where we’re at now is that folks are multichannel, right? They’re selling on eBay. They’re also selling on Amazon most likely. They also have their own website and they’re using a point-of-sale device. They’re using Square to go to a craft fair on a weekend or, you know, some kind of trade show. And what that’s done is dramatically change their sales tax complexity. And, using Amazon as an example, by the way, there’s no barrier to entry, right? To do all those things.

NASIR: Exactly.
MARK: It’s not very hard to get a presence set up across the board on all those things. So, what’s happening now is that there are so many sellers and they’re competing, you know, head-to-head. One of the biggest differentiators for them is shipping. So, if you and I are selling a pair of Air Jordans, right? Just as an example, and you’re offering next day – Amazon will provide this eventually – same-day turnaround and I’m providing kind of the traditional three to four day, I don’t stand a chance, right? So, that’s why folks are using this Fulfillment by Amazon service because it allows them to compete much better and also the customers demand just quicker turnaround.
What happens is when they use Fulfillment by Amazon, they are literally sending all of their inventory to Amazon and then Amazon takes care of the rest. But what Amazon is doing is just distributing that inventory based on their kind of internal algorithm to say, “Okay, Matt’s selling Air Jordans. We know that those sell in a particular part of the country so we’re going to send everything to our warehouse in Fresno,” just as kind of a high-level example.

NASIR: Yeah.
MARK: Well, if you’re in Texas and your stuff gets shipped to California, California raises their hand and says “Hey, look, I don’t care if you’ve never been to California, I don’t care if you don’t have an employee in California or a storefront, the fact that your inventory is being stored here is sufficient enough connection to where you have nexus in California. Therefore, we want you to comply with our laws. So, we want you to get a sales tax license in California and we want you to collect sales tax on items that are shipped to customers in California.”

NASIR: Yeah.
MARK: So, what’s happening is mom and pops – no matter what level of revenue they’re at – are now having to comply in more than a dozen states, right? Instead of just kind of worrying about their sales tax in their home state

NASIR: Obviously, each state has its own issues. Are there any particular states that are a little bit more complicated than others? Or is it pretty much the standard laws here and there?
MARK: That’s a really good question.
So, the laws are pretty complicated throughout. Really, where it gets more complicated is on kind of the filing side of things and the work that somebody would have to do to get the data that’s required to be able to file of sales tax return in those states, and that’s why we started TaxJar. But there are really crazy examples around taxability. Whatever item that you’re selling – let’s go back to our Air Jordans example – that may be taxable in one state and may be exempt from tax in another. Or you know….

NASIR: Yeah.
MARK: This is kind of crazy but maybe the shoelaces are taxable in one state and non-taxable in another. At the end of the day, the sales tax issue just gets in their way of growing their business. It’s an administrative hassle and burden so people just can’t stand it and, if they want to do it, they just can’t understand it and that’s typically what we see.
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MATT: Today, we have Anita Ron with BriteWorks. Welcome to the show, Anita!
ANITA: Thank you for having me! Really excited to be able to let you know a little bit of an insight about the small business world. I started a company about 18 years ago which was called BriteWorks Inc. But we provide high-end quality janitorial services for commercial, industrial, and government organizations throughout the southern California area.

MATT: We’ve written a couple of things about certifications for women on businesses but the question that usually comes up at some point is, “Is this worth it?” and “How is it going to benefit my business?”
ANITA: Well, one of the things is, if you qualify for business model certification, if you qualify for being a woman doing business, or if you’re a minority-owned business, then you have some opportunities out there because, as you know, the government is trying to assist other individuals to go up on a scale as far as being able to be successful in their businesses or what they’re trying to start up and provide jobs in our communities. And so, there is some certification – one is for women – and it is an extensive process. You actually should be in business for about three years because you’ll have to provide your tax returns, letting them know that you’ve been in business and you’re a solid company and this is what you’ve been making for the last three years. So, then there is a profile on you, the business, and your organization and yourself. Then, there’s also the certification for 8(a). 8(a) is a government SBA program that actually is there to help minority businesses and you need to own 51 percent of the business so they’re looking for someone that is honestly a minority. What that does is it gives you a little bit of leverage to be able to compete in the government world to acquire businesses that they offer which they say another entity of the government and what you’re doing is being able to get an opportunity not to be bidding with other large conglomerates – and, not only that, not bidding like, 20, 30, 40, 50 other companies. They actually narrow down the margins that you’re able to bid with just a couple of organizations that are minority-owned or they’re considered set asides that they’re willing to give it to a small minority business. The competitive level is a little different and it’s actually put there in order to have some of these small businesses actually get off the ground.
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NASIR: Very fun episode today. I’m really looking forward to something that I’m very much into which is CrossFit. Actually, I’m not at all. Never done it in my life but I feel like I should say that.

MATT: Yeah, I’ve never done it, never plan on doing it. I have friends that are all about it and I’ve seen people do it. It just seems like it’s asking to be injured. It’s not natural. They’re just, like, jerking around tons of weight awkwardly and – I don’t know – it just seems very questionable but…

NASIR: Actually, what I am into is all the CrossFit videos of people getting injured doing crazy stuff. That’s pretty funny.

MATT: I like to watch injuries.

NASIR: Yeah, but they do some really, really dumb stuff and it’s obvious bad form. And then, of course, it’s really what not to do in CrossFit.

MATT: So, what we’re going to talk about, this is a CrossFit gym in West Palm Beach, Florida. So, this CrossFit gym, their logo is basically the exact, it’s not exactly the same but it’s the Michael Jordan Jumpman logo but upside down.

NASIR: It’s pretty close.

MATT: Is it trying to make some sort of message? I don’t understand it to begin with, but that’s why Nike is going after them, saying, “We own the rights to the Jumpman logo. This is infringement. You’ve just taken our logo and flipped it upside-down.”

NASIR: But, see, what’s interesting about this whole thing is CrossFit themselves, they’re an organization and I think we just actually talked about this a couple of days ago about how they actually license their name out to other companies and other gyms or whatever pay to use this license. So, accordingly, they are very aggressive to make sure that they are able to maintain the sanctity of their brand by suing everyone that uses the brand without their consent because, you know, these other companies are paying a license fee. So, in order for that to have some value, they have to enforce the brand. Here, I mean, if you think about it, if they’re just a licensing brand, they go day by day making sure that no one else is using it so they have a pretty robust legal team to do this. Now, that same legal team has to defend from trademark infringement rather than enforcing it.

MATT: I like the attorneys for the CrossFit gym’s response. “With all due respect to Michael Jordan, I’ve never seen Michael Jordan slam dunk a 70-pound kettlebell upside-down.” That was their response.

NASIR: Yeah, but it’s fair because the question is, you know, we’ve gone through trademark infringement before. The question is, “Is there any likelihood of confusion?” and there is a number of elements but that’s always the element that is hotly contested, right?
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NASIR: And, here we are, bringing you another episode of Legally Sound Smart Business.

MATT: We’re going to talk about the life of Linsday Lohan. Not surprisingly, she’s in the news again for something bad. This time, she’s getting alleged of stealing a business idea. I guess she had a joint venture. Her and I believe her brother was involved too and then a friend of her brothers were in this joint venture to develop this shopping app.

NASIR: I think fashion app, if there’s a difference.

MATT: Fashion app?

NASIR: Yeah.

MATT: Revolutionized user shopping experiences. So, whatever that means but anyways. So, they had the idea. I assume Lindsay Lohan was only involved for name purposes only because I don’t know why you would choose her as any sort of business partner. But, basically, they had this deal or this joint venture with her brother’s friend and I guess, eventually, she just kind of stole his idea and ran off with it. And now, he has just filed in Manhattan Supreme Court for $60 million for her theft of his business idea. So, yeah, Lindsay Lohan.

NASIR: The app that they were working on uses some kind of image recognition technology that allows users to basically identify clothing or accessories in photographs or social media feeds. So, of course, you know, they were responding that the two apps aren’t clones and that the suit’s meritless, of course, and that’s their defense. But I think the focus is going to be on these actual written contracts because there’s so many app clones of different games and so forth of each other and a lot of times – we’ve talked about this in the past – from an intellectual property perspective, the only thing that you can really rely on is trademark and copyright.

MATT: Yeah, and that’s what I was going to say. I mean, for the actual legal aspect of this, I’m sure even their original idea was very similar to a bunch of other apps that are already out there. I’m not going to begin to try to figure out what her app actually does specifically, but I’m sure this isn’t the first shopping or fashion style app that’s out there. From that aspect, it’s going to be a little bit more difficult to prove that she copied it or stole it. But, if there’s actual documentation of this, that’ll be a little bit easier and I don’t get why they’re suing for $60 million. It seems a little bit high.

NASIR: Or randomly chosen. But that’s what happens with those lawsuits. I mean, you just pick and number and see where it falls or damages.
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MATT: What do we have? We’ve got something I know you’re going to like today.

NASIR: Is it about pizza?

MATT: No, it’s not about pizza, but it is about one of the topics that are highly talked about on this podcast. We’re combining a few things here. We’ve got a dispute between Lyft and Uber.

NASIR: Oh, nice.

MATT: I know you are anti-Uber and I think this is actually going to probably make it worse for you because…

NASIR: Worse or better? I think it’s going to be more support. Like, people are going to join my cause after today.

MATT: Yeah, I’m saying you’re going to dislike Uber more after this.

NASIR: Yeah.

MATT: I need to get this guy’s name too because he had a pretty awesome name. I want to make sure I find it before I get into the story.

NASIR: Travis VanderZanden.

MATT: Yeah, great name. So, he’s the former COO of Lyft and now Lyft is suing him for a breach of confidentiality. There’s a confidentiality agreement and then a breach of fiduciary duty. Basically, he was a COO of Lyft so pretty high up exec and he’s being accused of essentially taking all this confidential information from Lyft before he then went to Uber. So, a few things that he’s done here that are obviously still accusations so I don’t want to say he’s done it or not but downloading non-public documents to his personal Dropbox before leaving so we’re talking confidential strategic product plans, financial info, forecasts, growth data. I guess they had a meeting set-up right before he was about to leave on – I believe – a Friday about his resignation. He cancelled a meeting last minute and then went home and backed up a number of emails and confidential documents to his home computer and cell phone.

NASIR: Oh, man.

MATT: Synched personal Dropbox to the company for up to three months out. So, those are a few of the things. I’m sure there’s more than that but, obviously, it’s accusations. But the problem with this is Lyft hired someone to go back and look at what happened and that’s how they know this happened because they can look at his computer and see that he pulled this information from his work computer and work phone and synched that to his personal accounts. Not looking good for old VanderZanden.
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MATT: So, you got this email, I guess it was a security breach – I don’t know if you want to call it a security breach – but it looks like some of their customer information was sold to a third party and this is Ammo To Go. Their customer email list was sold and they were able to kind of verify that through a couple of different avenues. They basically sent the email out to, I think, only the people they believe were affected – I think they mention that in there – and they said it looks like it might have possibly been sold to Target Sports USA which I assume is related to Target the store but maybe I’m making an inaccurate assumption.

NASIR: No, I don’t think so. I think it’s target like ammo and guns, but go ahead.

MATT: Oh, yeah, that makes sense. All right. Well, scratch that!

NASIR: But what’s interesting is that one of the ways that they’ve confirmed all this is that this other Target Sports USA, they actually purchased, or this is what they believe, they purchased an email list from who they thought was Ammo To Go and, from their perspective, that didn’t happen. And so, then they started looking a little bit deeper and found out, “Okay. Wait a minute. Some of our data’s been breached and basically all the emails have been taken and now is being sold on the open market to companies like these.” So, lots of issues here but I think one of the coolest things is that – and we’ll post a screenshot of the actual email because I think – this is a very good representation as to a great way of dealing with a problem like this. I mean, a small business that is, you know, being hacked and we’ve talked about it in the past and I’m sure security experts will agree that there’s only so much things that you can do to prevent a security breach. Obviously, the smaller the business, the harder it is. But, when it happens, what do you do?
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MATT: Question of the day. “Every quarter, we have to take care of some corporate stuff and many of my employees are required to work on the weekend. Some of the employees have voiced complaints but can I legally do this?”

NASIR: Okay. So, basically, this is a question about scheduling, and how and when can you make your employees work. Just like everything in employment law, from a conceptual point of view, usually, the employers can do everything they want unless it’s prohibited by law, right? I know that sounds funny but that’s really how you have to start it out because there are so many little small details that are prohibited that the answer to the question, “Can you do that?” “Yeah, always,” but the question is, when you do it, is it going to affect something else?
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MATT: So, restaurants in New York are being sued by the music industry for playing music in their restaurants which, you know, I guess that, when you think about it, is there a valid license to the music that’s being played? How exactly is it set up? Or maybe some restaurants are just having their owners records their own music and that’s what’s being played over the speakers? But it’s a really, really interesting idea that, like I said, I’ve never really thought about it.

NASIR: Yeah.

MATT: Lucky for me, you’ve looked into music licensing for restaurants.

NASIR: There are these what are called “performing rights organizations” and there’s a few of them. There’s BMI, there’s ASCAP, there’s SESAC, and each one of them have a different focus and so forth. They’re not really important to all this but the point is that they govern not only stuff that’s playing on TV but also radio. By the way, there’s also – related to this – sports events too and I’ve dealt with that as well. When you’re watching the NFL, right? There’s always that warning that this is not supposed to be rebroadcasted, et cetera, and then you’re sitting in your living room thinking, “Wait a minute, am I breaking the law right now by watching this?”
But the reality is that, when you have a restaurant, for example, depending upon whether or not the general public can listen to the music or whether or not how the size of your TV and all these very specific specifications will depend upon whether or not you have to pay a licensing fee to the appropriate organization for use of that. And so, oftentimes, like, for radio, if you have more than, like, six loud speakers, or more than four loud speakers in any one room, or joining outdoor space, there’s always those technical details, but the point is that, if you want to play the radio or even, like, people say Pandora or Spotify, you can’t just play that and say, “Okay. Now, this is my media entertainment for my restaurant.” You actually have to get that license to actually play that. And so, oftentimes, if you think about it – and we’ve talked about this in the past – the only way that this license has any value or people have any incentive to actually buy a license is enforcement. So, these guys, these organizations are very aggressive in making sure that these rules are followed to such an extent they’ll even send in literally undercover so-called informants into these restaurants just to document and file a lawsuit or send a demand letter.
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MATT: So, San Diego Magazine, they published their September issue. On the front, it says, “Hidden San Diego.” It’s all these secret things to do and see and I kind of want to see where some of these things are, but I’ll have to buy the issue, I guess. Or maybe I won’t. I don’t know if I’m going to protest what they’ve done. But, apparently, what is this? A blog, I think, is what it is. I should probably know this.

NASIR: Yeah, it’s a blog. Or it’s a website.

MATT: I guess I didn’t go to the website which I probably should have.

NASIR: Yeah, you probably should have.

MATT: So, there’s a woman, they called her a blogger so I figured she just had a website/blog, but it’s also called Hidden San Diego. So, now, this issue came out and she is very upset because she’s claiming that the magazine essentially stole her idea. She’s been doing this for four years, according to her. Now, she’s basically had her idea stolen and all her hard work.
So, this happens, she posts something on Facebook. There’s actually a pretty big backlash against San Diego Magazine. I guess she had a lot of people on her side. And then, San Diego Magazine posts a response about a story they allegedly stole which, I guess, it’s not even really a story they stole. I think it’s more of an idea. We’ll have to link the response so people can read it. But the response is pretty poor in my opinion. It’s really belittling the blogger and this is where I’m torn, I guess. The facts are, I think, in favor of San Diego Magazine, if everything is true, based on what they say; they just did it in the worst, you know, one of the worst ways possible. Like, they could have handled this with a lot more tact and come off a lot more professionally.

NASIR: What’s interesting, if you read the comments under the article – the Facebook comments – it seems like people in general are overwhelmingly in support of the blogger.
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NASIR: We’re talking about valuation today.

MATT: I’m sure a lot of people have seen Shark Tank or have at least heard about Shark Tank. But, if you’ve seen an episode, you know that, at least once an episode – actually, not even once an episode – in every single one, you see they come out and the first thing they say is, “I’m offering this percent of my company for this amount of money.” So, you know, you multiply that out and that’s how you get what the entrepreneurs value their company at and there’s usually a dispute between what someone values it at and what the sharks value it at. And so, I think that’s, I would say, for those people that are on that show, that’s probably the toughest thing for them to do because, a lot of times, sometimes, the businesses have some track record or some sales or specific industry things like that, but I think, a lot of times, they’re just kind of throwing numbers out there. They’ve looked at prior episodes and prior things and just tried to take a stab at, you know, what they think the value of their company is, and sometimes they get called out, especially Mark Cuban will do that pretty frequently.

NASIR: Yeah. The most common factors in the different calculations for businesses that have been established is using their revenue or EBITDA – EBITDA being earnings before interest, taxes, depreciation, and amortization. I mean, that’s a pretty standardized general accounting practice number. It’s an actual number and usually there’s a multiplier added to that, depending upon – I don’t know – the industry or what-have-you, right? There’s different standards and so forth. And so, usually, there’s different calculations based upon that. But, the reality is, if everyone used that, most of these startups would be worth basically zero because they’re usually pre-revenue.

MATT: To people that are looking to value their young companies, there’s a lot of different options to look at and I think it’s just finding something that (1) makes sense and (2) they can explain or back up to the best of their ability. I think, if you come in with that, if you have numbers, great that you can back it up, that’s obviously great. But, I think, if you can back it up and explain why you valued it at the number you did, I think that’s going to be the best thing you can do walking into a group of investors.
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NASIR: So, American Idol is coming back this season, right? It seems to be coming up soon, if it hasn’t started already.

MATT: I can’t say I even know if it’s still around or who the people are. All the original people are off of it now, aren’t they? I think that happened a long time ago. One winner with the unfortunate name of Phillip Phillips…

NASIR: When I was Googling it to do more research, I was trying to figure out if that was just, like, a mistake. No, it’s basically the same first and last name with an S difference, right?

MATT: Yeah. I guess he was a winner a few years ago in 2012 and he’s trying to get out of his contract that was signed saying that, you know, it’s just really patently unfair and he got uncompensated for a show, he did a performance for an insurance company that was an endorsement deal and he was only paid 20 percent commission when he was supposed to be paid 40 percent. I mean, those aren’t as bad things as if you actually read the agreement itself and, like I said, I think we have something that seems pretty legit in terms of what’s in the actual agreement.

NASIR: What’s interesting about this contestant, Phillip Phillips, is that what he’s alleging or his attorneys are putting forth is that this 19 Entertainment is not a licensed talent agency and this is all under the Talent Agency Act in California and it’s a very controversial old law. I think it was developed in the 60s but it’s been used, basically, if you are an individual manager or a corporation that is procuring employment on behalf of an artist or some other talent – artists are defined, all these have definitions, and procurement even has definitions and employment has definitions under the act – that you need to be licensed. What’s controversial is that, if you’re not licensed, then your contract may be totally voidable and that all the profits that could have been made without that contract may be disgorged from that unlicensed agency. And so, kind of peculiar is that this 19 Entertainment is being alleged to not be licensed as a talent agency.
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NASIR: All right. So, let’s see. Thanks for joining us everyone and don’t forget to leave a positive review on iTunes for us.

MATT: Yeah. I mean, if you’ve listened this long into the episode, you obviously like it.

NASIR: Unless you fell asleep which, in that case, time to wake up.

MATT: Yeah, and leave that review. All right. Keep it sound and keep it smart.