A Warning for Anyone With an EIDL

If you took an SBA disaster loan, Ami Kassar says, you got a great deal but you need to manage the loan carefully.

Good Morning!

Here are today’s highlights:

• A TikTok ninja’s core principle: “If you can’t sell a condo, you have to sell yourself.”

• Times have changed for craft breweries: “Seven years ago it was nothing but growth.”

• Gene Marks on how a new federal law affects retirement benefits.

• This is a very good time to be looking for a tech worker. 

SOCIAL MEDIA

Here’s how real estate agents are using TikTok to survive high interest rates: “[Lizza] Prigozhina is the 23-year-old queen of New York real-estate TikTok, a content whisperer to the star agents of Corcoran, Douglas Elliman, and Nest Seekers. In a high-end market that has been slowing since September, with whispers of downturns and 2008 in the air, what Prigozhina offers to real-estate agents is an injection of levity into their malaise and, ideally, thousands of new followers and possible clients. Under her guidance, agents are flocking to TikTok, where, for $700 and up a week, Prigozhina helps them create viral content, writes captions, and even posts on their behalf. Brokerages are laying off their agents, and sky-high mortgages are making sellers skittish, but her business is booming: In a good month, she’ll make around $10,000.”

• “Born in Russia, she had arrived in the city in 2020 to attend the New York Film Academy and needed a place, so she reached out to Alexander Zakharin, a broker at Avenues Real Estate and a fellow Russian. Prigozhina didn’t end up using his services, but she saw Zakharin’s TikTok, on which he had started posting apartment tours when no one was visiting them in person.”

• “Prigozhina realized what was missing: him. ‘Alexander has a big personality,’ she told me matter-of-factly, and she convinced him to put himself in front of the camera.”

• “Since working with Prigozhina, Zakharin’s following has surpassed 700,000; now, in his most frequent style of video, he stands on the steps of the Plaza and interviews unsuspecting tourists about their dream New York apartment.”

• “As his TikTok clout grew, the luxury market peaked, breaking records in 2021 and the first half of 2022 with a record $16 billion in sales — before they fell 18 percent this fall. Prigozhina’s central principle applies even more in a slowdown: If you can’t sell a condo, you have to sell yourself.” READ MORE

COMPETITION

There may be too many small breweries: “Craft beer’s popularity has risen nationwide for more than a decade, and breweries have become a calling card for up-and-coming neighborhoods and communities, giving residents and visitors new places to gather and enjoy a taste of their towns. But in 2023 the smallest number of new breweries in over a decade will open, the Colorado-based trade group Brewers Association predicts. The bar-stool talk among beermakers and their customers is whether American cities have reached craft capacity and how much anyone wants yet another take on the IPA. About 9,500 breweries operate in the U.S. now, the association says.”

• “Highland Brewing Co. of Asheville, N.C., opened in 1994. It advertises itself as the first legal brewery to launch since Prohibition in the Appalachian city of 94,000 residents. Now it’s one of over 50 in the area.”

• “In Atlanta’s West End neighborhood, three craft breweries and a beer-heavy bar—Wild Heaven Beer, Monday Night Brewing, Best End Brewing and Hop City Beer & Wine, respectively—occupy the Lee + White retail development. Locals have nicknamed the complex Malt Disney.”

• “Geoi Bachoua, owner and operator of Bine & Vine Bottle Shop in San Diego’s Normal Heights neighborhood, likes to keep his 1,800-square-foot store’s selection of more than 500 beers varied. He says he isn’t impressed with most of the 30 to 40 new beers he samples each week before deciding what gets stocked. ‘The vast majority of what I taste is garbage,’ he says.”

• “Mr. Bachoua says that craft beer has reached an oversaturation point in the San Diego area, home to nationally known breweries like Stone Brewing. He says upstart breweries need to take a hard look at the financial realities: ‘It’s not just growth anymore. Seven years ago it was nothing but growth.’ Now he sees a lot of breweries closing and consumers turning to wine or nonalcoholic beverages like kombucha.” READ MORE

FINANCE

If you got an EIDL loan, Ami Kassar has a warning: “What borrowers need to realize is that the time may come when they need to borrow money again. If their business still has a balance on its EIDL loan, the day of reckoning will have arrived. Under the terms of the EIDL loan, the SBA has a lien on the business, and the new lender will require the SBA to subordinate that lien before issuing a new loan. The first line of questioning will come from the new lender: What did you do with your EIDL money? Did you use it for authorized purposes? If not, that will raise a character issue that could endanger the new loan. If you do get through these questions, next up will be the SBA officer who has to approve the subordination request.”

• “My advice to those with an EIDL loan is to make a plan. If you used the money for legitimate purposes and your business was hit hard by Covid, you don’t have much to worry about.”

• “But if that’s not the case, clean up your balance sheet and be prepared for the next time you might need to borrow money.” READ MORE

When a former VC decided to build a digital-frame business, he chose to bootstrap it: “Back in 2018, Michael Segal was working at Bessemer Ventures and building his side business making digital picture frames where families could share photos. With just two people and minimal effort, he recalls, the business reached $2 million in sales. So Segal, now 35, brushed aside any qualms and quit the venture world. Today, that business, Skylight, is a $75 million (2021 revenue) consumer electronics operation—with no investors. By keeping costs down, selling only online and plowing profits back into the business, he plans to keep it that way, despite inquiries from wanna-be investors.”

• “Not only does growth get tougher as companies get larger, but Skylight faces increasing competition in the digital picture frame market. Aura, a startup founded by early Twitter employees, raised $26 million in debt and equity for its expansion in November.”

• “Meanwhile, Nixplay, which says it reached $58 million in revenue last year, now is trying to raise $15 million through equity crowdfunding. As the category has expanded to millions of users, Segal says cheaper look-alikes have popped up.” READ MORE

HUMAN RESOURCES

Gene Marks reports on the new federal law that makes it easier for small businesses to provide retirement benefits: “The new legislation expands the tax credit for companies with less than 50 employees to pay for administrative costs when starting a new plan from 50 percent to 100 percent with a cap of $5,000 annually. In addition, small businesses with up to 100 employees may be eligible to receive a tax credit on employer contributions made to some employees’ retirement accounts up to $1,000. Michael Menninger, CEO of Menninger & Associates in Trooper, [Pa.] thinks Secure 2.0 will cause big changes in retirement savings.”

• “‘We love this, as it provides an increased incentive for small employers to start a new retirement plan for their employees,’ he said. ‘In the past, it was cost prohibitive for many employers to start a plan, and this makes it nearly cost-free to do so, except if the employer chooses to make matching or nonelective contributions.’”

• “Beginning Jan. 1, 2025, the legislation will also require employers to withhold a minimum contribution of 3 percent of the earnings of new employees to their 401(k) plan. (There is an exception to the requirement for start-ups, small businesses with 10 or fewer employees, churches, and governmental plans.)”

• “Also included in the legislation is the ability, beginning in 2024, for employers to consider an employee’s student loan repayments as a ‘contribution’ and therefore match that amount for their retirement savings.” READ MORE

It’s getting easier for non-tech companies to hire tech workers: “In a reordering of the market for tech workers, more technology professionals are looking beyond the well-known Big Tech employers to companies in many other industries that increasingly offer challenging opportunities. Dispersing talent beyond the major tech companies, some analysts say, should be welcomed. ‘If this transition redeploys skilled tech workers to other sectors of the economy, that may very well be a healthy development,’ said Tim Herbert, chief research officer at CompTIA, a technology education and research organization.”

• “For the first time since the dot-com bubble burst two decades ago, the tech industry is at the forefront of an economic downturn. After frenzied growth and hiring during the worst of the pandemic, the tech sector is going in reverse.”

• “Today, a majority of tech jobs are at companies outside the tech sector in industries like banking, retail, health care and manufacturing whose operations are increasingly becoming digital.”

• “These mainstream companies, unlike their Silicon Valley counterparts, did not go on manic hiring sprees during the pandemic. But they continue to invest in tech skills.” READ MORE

BRANDING

Even in fashion, not being trendy can be an advantage: “MZ Wallace is a 22-year-old handbag and accessories line that makes utilitarian, no-nonsense shoulder bags, totes, duffels, backpacks and other carryalls out of sustainable nylon fabrics. The brand is not a household name. It does not possess a bold, easily identifiable logo or color scheme like Chanel’s interlocking C’s or the Gucci stripe. It does not advertise in fashion magazines. It has avoided famous endorsements and flashy marketing campaigns. But it has nonetheless achieved a cult status among stylish urbanites ...”

• “As Ms. Wallace Eustice predicted, early buyers at department stores didn’t understand the brand. They were told to change and raise their prices. But the two stuck to their vision. They never altered the simplicity and practicality of their designs to be like the trendier bags of the early 2000s such as Botkier, Kooba, and Rafe that have now passed out of fashion.”

• “Today, MZ Wallace employs 40 people and offers over 400 different styles. Much of its manufacturing is now done in China and Vietnam. 60 percent of their sales occur online, from their website, which launched in 2004. Ms. Zwirner and Ms. Wallace Eustice said in the last three years the brand has grown by 20 percent and, excluding the year they opened, have only seen year-over-year growth.” READ MORE

STARTUPS

Despite the rise of remote work, this watercooler startup is making a comeback: “Conversations around the office watercooler may never fully come back — but that reality hasn’t wiped out Bevi, Boston’s ‘smart’ water startup. Founded in 2013, Bevi makes machines that dispense filtered, flavored, sparkling, cold or hot water on-demand, when hooked up to a water supply. It’s a popular amenity in the kitchens of tech companies, including Netflix and Microsoft. After a challenging period during the pandemic, the 135-person startup is back to growth mode, raising $70 million in August, said co-founder and chief executive Sean Grundy.”

• “The startup, which had about 3,000 corporate customers in 2019, now has more than 4,000.”

• “We decided that it made more sense to stay focused on the commercial market, with the idea that if the commercial market fully collapsed, and folks just never returned, we’d be in a terrible position. If the commercial market recovered, we’d be by far and away the best player in the industry.” READ MORE

OBITUARY

James Corley, co-founder of Dave & Buster’s: “Mr. Corley co-founded Dave & Buster’s 40 years ago with David Corriveau as a place where people can come to eat, drink and play games to win stuffed animals, toys and other prizes. They came up with the idea in the 1970s, when the two had separate businesses a few doors down from each other in Little Rock, Ark. Mr. Corley owned a restaurant, while Mr. Corriveau had an arcade. They noticed people would stop at one place and then go to the other in the same night, so they decided to combine their businesses under one roof, according to the company’s website. The duo opened their first location in 1982 inside a 40,000-square-foot Dallas warehouse.”

• “The company was sold to private-equity investors in 2006, and it became a public company in 2014. There are currently more than 150 Dave & Buster’s locations.”

• “He was 72 years old. His death was confirmed Wednesday by a spokesman for Dave & Buster’s Entertainment. The spokesman didn’t give a cause of death.” READ MORE

THE 21 HATS PODCAST

The business case for employee ownership: This week, Jay Goltz explains how he got interested in selling a percentage of his business to his employees and why he quickly lost interest once he started reading books, attending seminars, and talking to accountants and lawyers who specialize in employee stock ownership plans. As of now, Jay’s pretty much concluded that an ESOP could help him secure retirement for his employees while generating more profit for his business. In fact, he says, “I'm confident I can make more owning 70 percent of the company than I am now owning 100 percent.”

But he still has a few lingering questions, which is why we invited Corey Rosen to join the conversation. Corey helped draft the legislation that created ESOPs, he's the founder of the National Center for Employee Ownership, and he wrote the book on how the plans work. All of which led to an inevitable question for both Jay and Corey: If ESOPs are so great, why are there so few of them?

• You can subscribe to the 21 Hats Podcast wherever you get podcasts.

Thanks for reading, everyone. — Loren