Are You Sure You Want to Give Away Equity?
Ami Kassar says there are always alternative ways to raise money. The question is whether you prize control or growth.
Here are today’s highlights:
The return-to-office rate has finally topped 50 percent.
The demand for labor continues to grow, but the labor shortage isn’t going away.
Instagram’s declining relevance is a reminder not to rely too heavily on any one platform.
Arrested 17 times before he turned 18, a CEO goes out of his way to hire people who need another chance.
This entrepreneur is having second thoughts about giving away equity. Ami Kassar says there are always options: “He has an offer on the table. One of Joe’s angel investors will give him a few million dollars to build inventory and infrastructure. This option is the quickest and probably the easiest way to build the business without much financial risk. By taking on the investor, Joe can make certain that the company is adequately financed and ready for growth. But this choice will have consequences: Joe will no longer be the primary decision-maker in the company he built, and he won’t reap the majority of the rewards if the company goes gangbusters.”
“Joe was reaching out to me because he wants to know if there is another option. And there is – but it won’t produce growth as quickly, and the financing will be expensive.”
“The other option is purchase-order financing, which allows businesses to borrow against accounts receivable.” READ MORE
The return-to-office rate has cracked 50 percent for the first time since the pandemic began: “Average office use last week was 50.4 percent of early 2020 levels in 10 major U.S. cities, according to Kastle Systems, which tracks security swipes into buildings every business day. It is the first time office occupancy has topped 50 percent, according to Kastle, since March 2020, when Covid-19 forced most workplaces to temporarily shut down. All 10 of the major cities it tracks surpassed 40 percent for the first time, Kastle said.”
“Workers are still staying home ahead of the weekend, however. Offices are emptiest on Friday, according to Kastle, and they are the most crowded on Tuesdays. In New York, for example, occupancy rates dropped to 26.5 percent on Friday from 59.8 percent on Tuesday.”
“According to Kastle, two cities in Texas—Austin and Houston—had the highest return-to-office rates at above 60 percent.” READ MORE
The Department of Labor reports an uptick in openings but not in layoffs: “The nation’s demand for labor only got stronger in December, the Labor Department reported on Wednesday, as job openings rose to 11 million. That brings the number of posted jobs per available unemployed worker, which had been easing in recent months, back up to 1.9.”
“In another sign of confidence among workers, people voluntarily left their jobs at about the same rate as they did in November. Quits as a share of the overall employment base have fallen slightly from 3 percent at the end of 2021, but plateaued over the past few months. Overall, in 2022, about 50 million Americans quit their jobs.”
“Layoffs were also steady in December, staying at the unusually low level that has prevailed since a spike during the pandemic. While pink slips in the tech industry have mounted swiftly — most recently with 22,000 between Microsoft and Google — the bulk of the separations may have occurred after the labor turnover survey ended.” READ MORE
The labor shortage is going to get worse: “The clock is ticking on immigration. In more ways than one. In December, former governor Charlie Baker said that Massachusetts was struggling mightily to house the massive influx of refugees — more than 11,000 — that we’ve seen over the past year. [New York City] mayor Eric Adams declared a state of emergency after 40,000 migrants landed in New York City in 2022, many bused there by Texas Governor Greg Abbott. But while the crisis is real, and cities and states need far more help from the federal government, there is almost no talk about the crisis beneath the crisis: America is running out of working-age adults. And immigration — at levels that many, many people won’t feel comfortable with — may be our only solution.”
“Why are workers evaporating? A bunch of reasons. Baby Boomers are retiring. Some women are staying home because child care is unaffordable. And working-age men are opting out of the labor force in record numbers, particularly those without college degrees.”
“But the single most important reason is that America’s birth rate has largely been below replacement level since the 1970s, and in steep decline for the past 15 years. Once, the country was brimming with an up-and-coming workforce. In 1960, there were six working adults for every person over 65. In 2030, we’ll hit 2.8 working adults for every person over 65.”
“But says Michael Clemens, a senior fellow at the Center for Global Development and an economics professor at George Mason University, we’re actually facing an immigrant deficit. Trump-era policies excluded 1.5 million to 2 million people who would normally have immigrated to the United States between 2017 and 2021.”
“And because those folks never paid taxes, demanded goods and services, or made investments here, Clemens calculates that Trump’s clampdown on refugees costs the economy more than $9 billion a year. But good luck trying to convince Americans we need more immigrants. Nearly 70 percent feel that present immigration levels are sufficient or should be decreased.” READ MORE
In corporate America, meetings have proliferated since the beginning of the pandemic: “Considerable research shows the number of hours spent in meetings skyrocketed during the pandemic. Using data gathered from its suite of business software, Microsoft found the number of meetings a week attended by the average user of Microsoft Teams more than doubled from February 2020 to February 2022, while the amount of time spent in meetings more than tripled. That’s right. Whether workers had the bandwidth or not, they were in a frenzy of circling back, touching base, and bringing something to the table, unless there was a hard stop, in which case they’d make a plan to take it offline later. (Oh wait, someone’s hand is up.)”
“‘Last Monday I had 13 meetings,’ said Jennifer Wakefield, president and CEO of the Greater Richmond Partnership, an economic-development organization in Richmond, Va. Most were 30 minutes long. For the whole day, from 7:30 a.m. until 6 p.m., she had two 30-minute breaks. How did she spend those precious lulls? She caught up on her email.”
“Ms. Wakefield’s current vexation is a regular weekly meeting whose sole purpose seems to be—to meet.” READ MORE
If your business relies on Instagram, you may want to think about a back-up plan: “Since its launch in 2010, Instagram's image-first design has helped attract the vanguard of digital creators, brand ambassadors, and marketers. Sponsorships and product integration, while accidental at first, quickly became an integral part of the platform. It was the place where brands could partner with seemingly regular people to sell prospective customers on a more-ambitious lifestyle, with all the trappings that accompany it. Nearly every marketer surveyed by Shopify in 2021 — a staggering 97 percent — considered Instagram their most important channel for influencer marketing.”
“Enter: TikTok. In 2016, the competitor entered the market and sent Instagram spiraling. The app's addictive algorithm and snappy videos captured people's attention with its focus on spontaneous discovery, keeping users engaged for longer.”
“To compete, Instagram launched its own short-form-video feature, Reels, in 2020. But it wasn't enough. According to data obtained by The Wall Street Journal, Instagram users spend 17.6 million hours a day watching Reels, while people spend an astounding 197.8 million hours a day on TikTok. Now, like Facebook before it, Instagram is becoming less and less relevant and struggling to do anything about it.”
“Instagram's trouble lies in the very thing that drove its initial success. Its algorithm is optimized for the users who made the platform popular: influencers. But by focusing on its power users, the platform loses out on engagement by regular people.” READ MORE
The case against banning TikTok: “A ban of TikTok throughout the United States, if it could actually be enacted, would immediately solve our national security concerns about the wildly popular Chinese-owned video app. But such a ban might ultimately put our national security at greater risk. Moreover, it would sidestep a broader problem — our nation’s overall failure to address concerns over the huge amount of personal data collected in our digital lives, especially when that data could be used by foreign adversaries. When it comes to its own citizens, China has prohibited everything from Google to Twitter to this newspaper. Rather than viewing that asymmetry as unfair, we should recognize its symbolic value: America wins when it can show the world that it’s an open and democratic country.”
“The case against TikTok isn’t hard to make. The heads of the F.B.I. and our spy agencies fear that the Chinese government will force TikTok’s owner, ByteDance, to hand over the extensive personal information of the app’s American users or demand that it push disinformation.”
“In an episode that revealed the possibility of future government interference, ByteDance itself admitted in December that it had fired some China and U.S.-based employees for wrongfully snooping on American’s private information, including that of journalists, collected through TikTok.”
“If we had comprehensive laws that limit the collection and misuse (including the potential export to China) of Americans’ online personal data, then fears about the Chinese authorities using the app for surveillance and data collection would be greatly reduced.”
“Keeping Chinese enterprises invested in the U.S. economy and its technology pays indirect but powerful geopolitical dividends in the form of dampening China’s willingness to antagonize the United States.” READ MORE
A CEO who needed a second chance is giving employees a second chance: “Chris Cavallini is a founder, CEO, public speaker and mentor to his employees at meal delivery service, Nutrition Solutions. But his reality today is a far cry from where he started out. ‘I grew up under some pretty unconventional circumstances — I was arrested 17 times before I turned 18, I spent a lot of time in foster homes and group homes and juvenile detention centers,’ Cavallini says. ‘When you're coming up in those environments, you're not thinking that your life is going to hit a trajectory of where I am today.’ Following his tumultuous teen years, Cavallini joined the military and served throughout his 20s. The experience provided necessary structure and discipline, laying the groundwork for the way he would approach his own life going forward, and eventually, the way he would build his business.”
“At Nutrition Solutions, which launched in 2012, Cavallini's team is made of up 50 individuals, and around a third have either been incarcerated and have criminal records, or are recovering from addiction or substance abuse.” READ MORE
THE 21 HATS PODCAST
This week, Shawn Busse, Paul Downs, and Jay Goltz go right to the bottom line. Shawn points out how easy it is for businesses to fool themselves into thinking they’re more profitable than they really are. Paul talks about how margins can vary from year to year, especially if an owner decides to invest in improving the business—as Paul’s doing right now. Jay says he’s long sought a 10-percent profit margin but so far, he hasn’t managed to get there. Plus: Shawn explains how he solved his accounts receivable problem. And have you looked at the 401(k) accounts of your employees lately? If not, there’s a good chance you’re going to find that they’re not saving a whole lot. Is that just the employee’s problem, or is it also the owner’s problem?
You can subscribe to the 21 Hats Podcast wherever you get podcasts.
Thanks for reading, everyone. — Loren