Beware the Debt Trap
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Beware the Debt Trap
Ami Kassar warns against turning to cash-advance lenders, which tend to make bad situations even worse.
Good morning!
Here are today’s highlights:
A Chinese shopping app is under-pricing Amazon.
Third-quarter GDP data indicate we aren’t in recession yet.
Spurred by the labor shortage, business owners support criminal justice reform.
Did a famed venture-capital firm pick the wrong time to go all-in on crypto?
MARKETING
Meet the Warby Parker of Caskets: “If you watch the music video for Taylor Swift’s new song ‘Anti-Hero,’ as more than 30 million viewers already have since its Friday release, you might spot an unexpected cameo from a [Massachusetts] company during a pivotal scene. It’s me, Titan Casket. Hi. The Metheun-based company, which sells direct-to-consumer caskets, learned this week that one of its products was featured prominently in the video for the single, serving as a hiding place for the singer as a dream sequence plays out on screen. The casket’s brief appearance is just the latest instance of the entertainment industry turning to the brand, which bills itself as ‘the Warby Parker of caskets,’ when in dire need of a coffin on set for a production.”
“But it’s the biggest break for Titan so far, according to Joshua Siegel, the company’s co-founder and chief operating officer. ‘We often sell to big productions, but just never, ever someone on the scale of Taylor Swift,’ Siegel said. ‘Not only having the casket in her video, but hiding in it, hugging it, and taking pictures with it, and posting them on Instagram. So it’s very exciting for us.”
“On Friday night, the Twitter account for Taylor Swift Style — a blog which typically points fans toward the earrings, high heels, and sweaters the singer is seen wearing — directed thousands of Swifties to the casket company’s product, which came as a shock to Siegel.”
“‘If you’re in the market for a casket, might I recommend the one by @titancasket ($1.1k) that @taylorswift13 features in the #AntiHero music video,’ they wrote.” READ MORE
FINANCE
When business slows, Ami Kassar warns, it’s easy to fall into a debt trap: “You own a restaurant. You need repairs, supplies, perhaps even a new air conditioning system. To gain loyal customers as a start-up, you have offered at-cost meals, but now food costs are up, you're behind on your rent and you just need to buy some time to get your feet under you. You need cash, and you need it right away. You find a lender—an ‘advancer’ as some are called—that offers to float you the $50,000 immediately, taking a percentage of all credit card sales until it is repaid—plus, say $15,000 (or 30 percent). This is just the get-out-of-jail card you were looking for, the way to emerge from your situation into a better one. Or so you think.”
“At first, the restaurant owner barely blinks at the hefty, percentage cut of those credit card sales. After all, you've got $50,000 to pump into your business, to plug up any and all holes, You won't even feel it.”
“And you don't, at the beginning, while the $50,000 is allocated. But after it's gone you are left with this cold reality: A chunk of every dollar you earn is going to your perceived liberator, who may be getting upwards to 30 percent for fronting you that cash. In other words, for every $1,000 paid to you through credit cards, you may be receiving barely more than $700.”
“Your chances of earning a profit, of expanding your business, even of hiring needed help, have been greatly reduced, along with chances of long-term survival.” READ MORE
ECOMMERCE
Shopping app Temu is out-Amazoning Amazon: “The prices seem almost too good to be true: Lenovo wireless earbuds for $3.70, an eyebrow pencil for 59 cents, two outdoor solar lamps for $6.39—all delivered for free. Welcome to Temu, which brings the rock-bottom prices and frenetic energy of Chinese ecommerce to U.S. shoppers. Temu’s website and mobile app launched on September 1, the first U.S. storefront from Chinese ecommerce giant Pinduoduo. Amazon, eBay, and other Western online stores feature plenty of goods from Chinese suppliers. Temu’s bargain prices are an experiment in cutting out the middleman, by allowing Chinese vendors to sell their products directly to U.S. consumers, and shipping directly from China rather than building out a network of U.S. warehouses.”
“Temu seems to marry the ‘everything store’ selection of Amazon with the low prices and social elements that have made fast-fashion juggernaut Shein so successful.”
“The catch is that the order might not arrive soon. Temu can’t compete with Amazon on speed, because it dispatches orders from Pinduoduo fulfillment centers inside China, flying them to the U.S. and delivering via U.S. mail.”
“Temu’s site says orders take 7 to 15 days to arrive in the contiguous U.S. and offers a $5 credit if a package doesn’t arrive within its delivery window. Several online reviews claim items arrived within only a few days.” READ MORE
THE ECONOMY
The recession did not arrive in the third quarter: “The U.S. economy grew at a 2.6 percent annual rate in the third quarter despite a slowdown in consumer spending during the summer amid high inflation and rising interest rates. Gross domestic product—the broadest measure of goods and services produced across the nation—increased after declining in the first half of the year, the Commerce Department said Thursday. Consumer spending, the economy’s main engine, cooled from July to September compared with the previous quarter.”
“Many economists are worried about the possibility of a recession in the coming 12 months. They expect the Fed’s efforts to combat inflation will further weigh on the economy, after higher rates have already begun denting the housing market and stock prices.”
“So far, though, key segments of the economy have remained resilient. The job market cooled some but stayed strong with robust payroll gains and low unemployment.” READ MORE
HEALTH INSURANCE
On average, health insurance rates have held steady: “The average cost of employer health coverage for a family this year is about $22,000, a figure similar to last year’s total, according to a new survey that shows upward pressure on healthcare costs hasn’t yet broadly translated into higher premiums. That will likely change next year, as insurers renegotiate contracts with hospitals and other medical providers that are seeking higher reimbursements to cover their own rising expenses for labor and other supplies. UnitedHealth Group and Elevance Health, parents of large health insurers, said on earnings calls earlier this month that they were seeing inflationary trends and taking steps to price coverage accordingly. Premiums for many individual and small-business plans are also expected to rise sharply next year.”
“The average cost of an employer health plan for an individual for 2022 was $7,911, compared with $7,739 last year.”
“The average 2022 general deductible for individual-worker coverage was $1,562, compared with $1,434 last year, which wasn’t a statistically significant change.”
“Gary Claxton, a senior vice president at the Kaiser Family Foundation, said insurers probably kept premiums flat for many 2022 plans because they had to lock in rates in the fall of 2021, when the extent of inflation wasn’t clear. ‘It just didn’t get priced in in 2022,’ he said. ‘I expect that will change next year.’” READ MORE
HUMAN RESOURCES
A bipartisan poll released by Small Business Majority finds that business owners support criminal justice reforms that would lead to expanded candidate pools: “The poll, conducted in six states – Georgia, Illinois, North Carolina, Ohio, Pennsylvania, and Texas – found that 84 percent of small business owners agreed that Clean Slate policies would open up a pool of job applicants that deserve a second chance. Regardless of political affiliation (30 percent of respondents identified as Republican, 37 percent of respondents identified as Democrat, and 27 percent of respondents identified as Independent), small businesses shared support for policies that can help boost labor recruitment.”
“Given the ongoing workforce challenges hindering small business growth, the poll results confirmed widespread backing for policies that seal or expunge qualifying criminal records from background checks.”
“One in three American adults has some form of criminal or arrest record, which can negatively impact families and communities. Even a minor criminal record can create lifelong barriers to employment, and communities of color are disproportionately affected.” READ MORE
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BUSINESS TRAVEL
Air travel is still a bit of a mess:
SILICON VALLEY
Did Andreessen Horowitz pick the wrong time to go all-in on crypto? “The storied venture-capital firm had developed a reputation as Silicon Valley’s greatest crypto bull, thanks largely to a 50-year-old partner named Chris Dixon who was one of the earliest evangelists for how the blockchain technology powering cryptocurrencies could change business. His unit was one of the most-active crypto investors last year, and in May announced a $4.5 billion crypto fund, the largest ever for such investments. The timing wasn’t good. Prices for bitcoin and other cryptocurrencies have plunged this year in the midst of a broad market downturn, erasing billions of dollars in paper gains for Andreessen’s funds. Consumer demand has vanished for some of the firm’s most-prized crypto startups, while others are facing increased scrutiny from regulators.”
“Andreessen’s flagship crypto fund shed around 40 percent of its value in the first half of this year, according to people familiar with the matter. That decline is much larger than the 10 percent to 20 percent drops recorded by other venture funds, which have largely avoided the risky practice of purchasing volatile cryptocurrencies, according to fund investors.”
“In its push to dominate the sector, Andreessen discarded established investment norms. In November, its investors tried—and failed—to invest in Magic Eden, an NFT marketplace, even though the firm already backed OpenSea, said people familiar with the matter.”
“Venture capitalists have long avoided backing potential rivals because it damages their reputation with founders who dislike the practice. Mr. Dixon said the fund doesn’t back companies that directly compete with its existing portfolio.”
“Mr. Dixon said the market’s downturn is an opportunity for the fund to continue backing crypto entrepreneurs, similar to what it did in previous down markets. ‘What I look at is not prices. I look at the entrepreneur and developer activity,’ Mr. Dixon said. ‘That’s the core metric.’” READ MORE
THE 21 HATS PODCAST
A Founder’s Year: Successful Raise, Fast Growth, and Mental Health Issues: This week, Hans Schrei tells Shawn Busse this has been a difficult year at Wunderkeks—despite many outward signs of success. It has to do with buying into the need to raise money and shoot the moon. It has to do with accepting the accolades that come with entrepreneurial achievement and then questioning your own self-worth when those accolades stop coming. It’s what Hans calls, “the miracle worker complex.” Hans and Shawn also discuss what it means to rely upon a sales platform like Amazon. Do you own the customer or does Amazon? And Shawn shares the biggest takeaway from his most recent Vistage meeting.
You can subscribe to the 21 Hats Podcast wherever you get podcasts.
Thanks for reading, everyone. — Loren