Americans Trust Small Businesses

It’s actually one of the few things Republicans and Democrats seem to agree upon.

Good Morning!

Here are today’s highlights:            

• These days, turning 65 doesn’t necessarily mean winding down.

• What would a 60 percent tariff mean for businesses that manufacture in China?

• Founded in 2009, Uber actually made money last year.

MARKETING

TikTok Shop is targeting Etsy merchants: “What to make of TikTok Shop — whether or not to beat it, join it, or ignore it — has become a bigger topic of conversation on Etsy seller forums. For the past couple of years, there has been growing frustration among some Etsy sellers over rising transaction fees, along with the increased pressure to run ads or offer discounts. But, there are also rising concerns about how Etsy sellers would perform on a trend-focused, video-focused platform like TikTok.”

• “As one seller put it on an Etsy seller forum, TikTok Shop ‘can be great or do nothing,’ depending on how well the seller can create viral content and close their products fit with current trends.”

• “The push to recruit more small businesses to sell through TIkTok Shop also comes at a time when TikTok is building tools to turn nearly every piece of content uploaded into a shoppable post.”

• “One Etsy seller on Etsy’s community forums pointed to the contrasting models of the two platforms, saying that TikTok is all about capitalizing on trends; ‘many sellers on Etsy aren’t competing against whatever the latest TikTok trending items are,’ the seller wrote. 

• “There is also a time-crunch element on TikTok Shop that Etsy stores don’t typically deal with. ‘[TikTok is] strict with where you must handle all shipping and fulfillment in three days of getting the order or your shop will be shut down,’ the Etsy seller who spoke to Modern Retail said. ‘That doesn’t mean just print the label, but the shipping must also track within the guidelines.’” READ MORE

ENTREPRENEURSHIP

Americans really do trust small businesses: “Entrepreneurs, take a bow. Among all U.S. institutions-including the military, religious organizations, K-12 schools, and colleges, Americans have the most positive view of small businesses, and the vote was not even close. In a recent survey conducted by the Pew Research Center, 86 percent of people said small businesses have a positive effect on the way things are going in the country these days, up from 80 percent in October 2022. Only 12 percent of respondents believe small businesses have a negative impact.”

• “The survey also found a broad base of support for small businesses across party lines. Among Democrats, 88 percent said small businesses had a positive effect on the country's trajectory. In a rare moment of bipartisanship, 87 percent of Republicans agreed.”

• “That net favorability rating of 74 percent is in sharp contrast to how Americans view large corporations, as well as financial institutions, which received overwhelmingly negative responses in the survey. The majority of both Republicans and Democrats disapprove of large corporations, which received 26 percent and 32 percent support, respectively.” READ MORE

A record number of Americans are turning 65 this year: “Today’s 65-year-olds are redefining a milestone long associated with retirement parties and the end of productive years. They are wealthier and by many measures, healthier, and expected to live another 20 years. A growing share are divorced. Many turn their focus to what they want in this next stage. ‘Being 65 is not just thinking about who you were, but what you might become in a new chapter,’ says Ken Dychtwald, CEO of Age Wave, a California-based consulting firm specializing in aging-related issues. Our own parents and grandparents, he says, weren’t typically thinking of new ventures and possibilities at 65. ‘They were winding down,’ he says.”

• “Robin Darrow, vice president of sales and marketing at Scentrifugal Events, turns 65 in a few months but has no plans to retire because she loves her work and also can’t afford to retire. Darrow, who lives in the Philadelphia area, helped found the company in 2016, which offers ‘create your own fragrance’ events at meetings and celebrations. ‘I’m not winding down. I’m just starting,’ she says.”

• “Today’s 65-year-olds are wealthier than their predecessors. While significant disparities exist, the median net worth of those 65 to 74 was $410,000 in 2022, up from $282,270 in 2010 in inflation-adjusted 2022 dollars, according to the Federal Reserve’s Survey of Consumer Finances.”

• “Mark Emerson, 65 of Watertown, N.Y., retired last year after a 40-year-career as a diesel- truck mechanic, first as a small-business owner and then with a large logistics company. He has retirement savings, but would have had more if he spent his entire career with the logistics firm, which had a company retirement savings program.” READ MORE

TRADE

What would a 60-percent tariff on Chinese imports do? “The U.S. trade deficit with China is on track to fall to its lowest in a decade. This looks, at first glance, like a decoupling of the two economies thanks to the steep tariffs President Donald Trump slapped on Chinese imports in 2018. Trump is spoiling to finish the job, floating a 60-percent, or higher, tariff on all Chinese imports if he’s re-elected this fall. The U.S., though, hasn’t kicked the Chinese import habit as much as the data suggest. Chinese and Western manufacturers have found numerous ways around tariffs; they are likely to redouble those efforts if the levies go higher.”

• “The fundamental obstacle to decoupling is that China’s dominant position in world manufacturing makes it hard to find substitutes. Its economy is hard-wired to manufacture more than it can consume, dictating that it export the surplus. As collapsing property investment undercuts growth, the ruling Communist Party has leaned even more on manufacturing, though many companies are already unprofitable.”

• “So, if tariffs of 25-percent barely reduced the U.S.’s dependence on China, would 60 percent do more? Probably. Khandelwal ran the numbers for a 35-percent tariff. He estimates a much larger effect on imports and resulting cost, equal to 0.8-percent of GDP.”

• “Still, Brad Setser of the Council on Foreign Relations predicts China would double down on efforts to evade or neutralize higher tariffs. ‘The incentive to disassemble the product, take out a few screws, find an alternative screw supplier, ship them to a third party so it’s not 100-percent Chinese content, and package it as an export from the third party is just overwhelming,’ he said.”

• “Setser predicts that China, to make up for lost exports to the U.S., would drive down its currency to boost exports to countries that haven’t raised tariffs—expanding Chinese companies’ presence in those economies. Of course, the U.S. could try to keep those imports out by hitting other trading partners with tariffs. Trump has proposed a 10-percent levy on all imports, not just from China.” READ MORE

For the first time in decades, the U.S. is buying more from Mexico than from China: “In the depths of the pandemic, as global supply chains buckled and the cost of shipping a container to China soared nearly twentyfold, Marco Villarreal spied an opportunity. In 2021, Mr. Villarreal resigned as Caterpillar’s director general in Mexico and began nurturing ties with companies looking to shift manufacturing from China to Mexico. He found a client in Hisun, a Chinese producer of all-terrain vehicles, which hired Mr. Villarreal to establish a $152 million manufacturing site in Saltillo, an industrial hub in northern Mexico.”

• “Mr. Villarreal said foreign companies, particularly those seeking to sell within North America, saw Mexico as a viable alternative to China for several reasons, including the simmering trade tensions between the United States and China. ‘The stars are aligning for Mexico,’ he said.” READ MORE

MANAGEMENT

Uber actually made money last year: “Uber Technologies posted its first full-year profit as a public company last year and projected continued growth in the first quarter of 2024, marking the end of an era in which the ride-sharing and food-delivery company gave priority to growth over profits. The company had a profit of $1.43 billion in 2023, which included a $1 billion benefit from its equity investments as well as income from its operations.The company turned an annual profit once before, in 2018, on the back of its investments, but it wasn’t earning money from its operations until now.”

• “The easy availability of capital for much of the past decade had Uber and other startups burning through tens of billions of dollars in an attempt to gain market share. From 2016 through the first quarter of 2023, Uber collectively racked up close to $30 billion in operating losses, according to S&P Global Market Intelligence.” READ MORE

VENTURE CAPITAL

Funding for Black and Latino startups plummeted in 2023: “While the market was cool for venture capital in general, capital raised by Black founders in Massachusetts dropped by 88 percent from 2022 to 2023 — compared with just a 21 percent drop in funding year over year for startups in Massachusetts overall. The market was frigid for Latino founders as well. They saw VC investment decrease by 69 percent over the same period, according to Crunchbase data. Daniel Acheampong, partner at Visible Hands, a venture capital firm that supports underrepresented founders, described the new data as an unwelcome direction in startup investing and a shock to the system. ‘You almost need to take a second to breathe,’ Acheampong said.”

• “In 2023, less than 0.1 percent of overall funding for Massachusetts businesses went to Black founders. Black founders in Massachusetts raised just $14.6 million in venture capital last year.”

• “Total funding raised by Massachusetts businesses came in at $15.8 billion in 2023, compared to $20 billion the previous year, according to Crunchbase.”

• “At the national level, funding for Black founders has decreased overall since a spike in funding in the wake of 2020’s racial reckoning. In 2021 and 2022, Black founders raised over $1 billion annually, which for both years was over 1 percent of the national average. In 2023, it was less than 0.5 percent, or about $661 million out of $136 billion, according to Crunchbase.” READ MORE

STARTUPS

Job-search platform Handshake wants to give employers a chance to show job candidates what they’re about: “Handshake, which counts some 15 million of them as users of its platform—has been designed more like a job board without video than a social media tool filled with it. Until now. On Tuesday, the popular platform is launching a ‘feed’-like interface and new video features it hopes will give companies a more direct line to communicating with Gen Z candidates in the style they prefer—and job seekers a more centralized place for discovering opportunities they might not otherwise find.”

• “Garrett Lord, Handshake’s co-founder and CEO, hopes it will ‘level the information playing field,’ he told Forbes in an interview. ‘It feels a bit disconnected on Reddit or TikTok,’ he says of employers’ videos about their companies. Handshake aims to be ‘the place where all the jobs, career fairs, and conversations come together.’”

• “Employers have already hopped on the social media trend, creating their own ‘day in the life’ videos and promotional clips that cater to young job seekers. But in a digital world of content overload and an endless choice of platforms like Glassdoor and TikTok to find employee reviews and interview insights, it can be hard for candidates to find those videos unless they’re actively seeking out a specific employer’s career site or TikTok handle.”

• “The idea is to provide job seekers with a more engaging view of the companies they’re applying to and interviewing for—one that goes beyond bullet points on a job board or a slickly produced video of managers boasting about strong company culture.”

• “Yet that also means it’s a high-stakes move for employers, one that can backfire if the videos come across as too promotional or lacking in credibility. Young job seekers, says Robinson, ‘can see through a scripted, choreographed and overly produced video’ with surprising ease.” READ MORE

THE 21 HATS PODCAST

Why Would You Want to Own a Business? This week, Shawn Busse, Jay Goltz, and Jennifer Kerhin respond to a somewhat depressing view of business ownership offered by an investor who buys businesses for a living. That view, essentially, is that for most owners, building a business is a daily knife fight of long hours, unexpected risks, slow growth, and meager returns. In this episode, I read most of the investor’s observations to Shawn, Jay, and Jennifer, and get their reactions, which hit upon a bunch of issues that are not widely understood—including how fast growth can destroy a business, how even a profitable company can go bust, and why a good metric to assess the health of a small business might be how many people have been crying in the bathroom this year.

• While Shawn, Jay, and Jennifer disagree vehemently with a few of the investor’s assertions—”Kiss my ass!” says Jay in response to one—they do acknowledge that he makes a lot of good points, which leads to an obvious question: Why would anyone do this? Why would anyone subject themselves to this kind of life? As you might expect, Shawn, Jennifer, and Jay have a response to that as well.

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

Thanks for reading, everyone. — Loren