Businesses Are Still Raising Prices
"People are tired of price increases," warns one business owner. "We are tired of price increases." But what's the alternative?
Good Morning!
Here are today’s highlights:
Gene Marks explains a new way to get financing. It’s called “open banking."
When Gen Zers run the show: less hierarchy, less formality, more focus on mental health.
Fast food is the second largest private employment sector in the U.S. What’s first? Hospitals. Hmmmm.
In Florida the average home-insurance premium has gone up more than 100 percent in three years.
PRICING
Inflation is still hitting small businesses, and they’re still raising prices: “The 50-person firm routinely updates its software so that increases in the cost of materials can be incorporated into new estimates as quickly as possible. Management also has begun uncomfortable conversations with customers about boosting overhead and labor charges to reflect higher operating costs. ‘I almost feel like it’s a momentum thing in the marketplace,’ said Baker, whose company makes large signs used in retail displays and corporate branding. ‘Someone else is doing it. I need to do it to keep up.’”
“Investments in automation and centralized purchasing have helped offset some inflationary pressure, but gross margins are lower than they should be, Baker said. He would like to boost rates by 5 percent to 7 percent but thinks a 3 percent to 4 percent increase is all customers will tolerate. ‘People are tired of price increases,’ Baker said, ‘We are tired of price increases.’”
“More than half of small-business owners said they plan to raise prices in the next 12 months, according to a survey of more than 450 entrepreneurs conducted in April by Vistage Worldwide. Sixty-four percent of those surveyed said they had increased prices in the 12 months prior, according to the business-coaching and peer-advisory firm.”
“Higher labor costs are the biggest source of pain, with more than 80 percent of entrepreneurs reporting that increases in wages and benefits are having a significant impact on their businesses, according to an April survey of more than 1,200 small businesses by Goldman Sachs. A.J. Nealey, the owner of Nealey Tire & Auto in Edgewater, Md., recently handed one technician a 25-percent raise to keep him from decamping to a competitor.” READ MORE
THE 21 HATS PODCAST: DASHBOARD
Gene Marks Explains “Open Banking:” This week, Gene talks about an intriguing banking trend that’s come out of Europe and could be headed our way. It sounds a little dicey, but it could take some of the work out of applying for a loan. Plus: business owners say they expect artificial intelligence to increase--not decrease--their headcount. Could they be right? And can we all agree on the definition of a small business?
You can subscribe to the 21 Hats Podcast wherever you get podcasts.
ENTREPRENEURSHIP
These days, college grads are far more likely to start a business than were previous generations of grads: “One in five Gen-Zers and Millennials say they were students before starting their businesses, according to a new American Express survey released on Wednesday. That compared with just 3 percent of Gen-X and Baby Boomer founders who reported as much. Instead, nearly three-quarters of the older cohort of entrepreneurs held a traditional job in the public or private sector before starting their company, per the report, which polled business owners with 500 or fewer employees.”
“To some degree, it's easier to start a company as a younger person, as you may have fewer responsibilities. When Jake Danehy graduated from Colgate University in 2016, he turned down a job offer from then-buzzy athleisure brand Outdoor Voices, so he could devote his full attention to his own apparel startup, Fair Harbor, which he launched with his sister Caroline Danehy in 2014. He was a college junior and she was a high school senior at the time.”
“You're still young enough to recalibrate if your startup efforts sink. In the fall of 2016, Nathan Kondamuri started his senior year at Stanford University with a job offer from consultant Bain & Company. His friend and co-founder Sophia Edelstein earned her own offer from consulting firm McKinsey & Company, plus admission to medical school. Instead, the two classmates turned their idea for eyeglasses with interchangeable frames into a real company and launched the New York City-based Pair Eyewear.”
“The survey also found that technology and social media were some of the most important factors driving young people to start businesses. Millennial and Gen-Z founders were most likely to learn about entrepreneurship online or on social media, while Gen-X and Baby Boomers were most likely to have been introduced to entrepreneurship through a business owner they knew personally.” READ MORE
MANAGEMENT
What we can learn from Gen Z managers? “At a New York startup company called August, employees enjoy ‘mindfulness Fridays’—a more-relaxed workday for deep focus without meetings. The company, which makes menstrual-care products, also has manager-driven quarterly ‘heart checks’ to see how direct reports are feeling about how hard they are working and how much they are paid. It’s a work style introduced by Gen Z co-founders Nadya Okamoto, 26, and Nick Jain, 24, who graduated from Harvard and Princeton, respectively, during the pandemic. ‘We talk a lot more than most places about how to prevent burnout,’ says Okamoto, who says she was diagnosed with borderline personality disorder two years ago, and speaks openly about it.”
“Generation Z—generally defined as college grads and 20-somethings born sometime between 1997 and 2012—entered the workplace when there wasn’t even one to go to. Those years, marked by a global health crisis and social unrest, helped shape their views about life as well as work.”
“Many of them were home as their parents’ workplaces closed, so they got a ground-floor view of what jobs really looked like, and they didn’t like what they saw: a work-life balance that left little time for life, management that seemed to not care about the mental health of their employees, and an organizational structure that didn’t give workers much of a voice.”
“Erin Burk, vice president of business development at August who describes herself as a 30s millennial, says some of the startup’s eight employees include therapy appointments on their shared work calendar. That’s in large part due to the tone set by the 20-something co-founders, she says, and it feels different from her more button-down past workplaces.”
“Work and personal lives move fluidly from one to the other: It isn’t unusual for August employees to dash in and out of the office in sneakers and workout clothes and curse freely and openly. ‘The idea of your authentic self and your professional self as two separate things is three or four generations off,’ she says.” READ MORE
INSURANCE
State Farm won’t sell home insurance even in wealthy areas like Beverly Hills: “Peter Mac was closing the sale of a home in the Hollywood Hills, a four-bedroom, five-bath estate with an infinity pool perched above the lights of Los Angeles. The new house had been on the market for two years, with the price tumbling to $25.6 million from an original listing of $48 million. But before the final sign-off in February, Mac presented the buyer with a fire insurance quote: $200,000 a year. ‘She almost fell off her chair,’ said Mac, a broker with The Agency. ‘She wanted to renegotiate.’”
“California’s property-insurance crisis is shaking up real estate in some of the most expensive housing markets in the US. Insurers are charging sky-high premiums or abandoning coverage completely in exclusive enclaves such as Bel-Air, Montecito, Beverly Hills, and Napa Valley wine country.”
“It’s part of a nationwide trend driven by climate change, and the fear is that California could become the next Florida. Homeowners insurance in hurricane-prone Florida costs over three times the national average, and more than a dozen insurance companies have stopped writing home policies there. Average premiums in Florida have gone up more than 100 percent in three years.” READ MORE
MARKETING
Venture capitalists are finding that the best way to attract founders is through a podcast: “In recent years, numerous heavy-hitters on Sand Hill Road have set up RSS feeds in the hopes of reaching the eardrums of the next billionaire founder. Whereas investors once had to woo founders with tasting menu dinners or trips on their private jets, they can now do so over Spotify. And, because ‘deal flow is destiny’ in the venture community, as [Jason] Calacanis notes, any tool to burnish investors’ brands is seen as mission critical. ‘The product becomes the people,’ Shernaz Daver, the chief marketing officer at Khosla Ventures, says of venture firms. ‘It’s a very different way of looking at the world.’”
“Today, capital allocators like Andreessen Horowitz, Sequoia Capital, Accel, and Kleiner Perkins all boast their own audio series with varying degrees of success. (Andreessen has two Top 50 technology podcasts on Spotify). Outside of venture companies, Midas-touch investors like Reid Hoffman, Brad Gerstner, and Bill Gurley have launched shows to much fanfare, while plenty of others talk, seemingly, into the void.”
“These days, feeds have supplanted the magazine cover, opening the floodgates for fledgling angels to secure funding and enter coveted deals by dint of their public persona. Harry Stebbings—the 20-something host of the The Twenty Minute VC, in which Stebbings interviews investors—raised $140 million for his funds off of the success of his podcast.”
“Even mega-funds, despite having nothing to prove, are jumping on the audio bandwagon. Take Sequoia, which has over $56 billion under management, recently debuting Crucible Moments, a slickly produced podcast exploring strategic decisions during a founder’s journey. Roelof Botha, the senior steward of the firm who also hosts the podcast, told me he wanted to go deep on fork-in-the-road-esque moments that shape companies’ trajectories.” READ MORE
RESTAURANTS
Twenty years ago, the documentary “Super Size Me,” triggered a backlash against McDonald’s, but it’s pretty clear who the winner is: “Six weeks after the film’s release, McDonald’s discontinued its Super Size menu, though a company spokesman said at the time that the film had ‘nothing to do with that whatsoever.’ It would have been easy to call the cultural moment a brand crisis for fast food. But two decades later, not only is McDonald’s bigger than ever, with nearly 42,000 global locations, but fast food in general has boomed. There are now some 40 chains with more than 500 locations in the United States. Fast food is the second-largest private employment sector in the country, after hospitals, and 36 percent of Americans — about 84 million people — eat fast food on any given day. The three major appeals of fast food remain intact: It’s cheap, it’s convenient, and people like the way it tastes.”
“Directed by and starring Morgan Spurlock, the bootstrapped, lo-fi documentary was a smash hit, grossing more than $22 million on a $65,000 budget. Following Mr. Spurlock as he ate nothing but McDonald’s for 30 days — and the ill effects that diet had on his health — the film became the high-water mark in a tide of sentiment against fast food.”
“‘I used to own shares of McDonald’s,’ said Jay Zagorsky, a professor at Boston University’s Questrom School of Business who has studied fast food in America. ‘Around the time of Super Size Me, I sold off the shares, and now I’m saying to myself why? That was one of the greatest stocks.’ He’s right. The stock price of McDonald’s hit an all-time high in January, and has gone up nearly 1,000 percent since Super Size Me came out — nearly twice the return of the S&P 500.” READ MORE
HUMAN RESOURCES
Much to its surprise, Britain has become a nation of immigrants: “In 2013 Lifespring Church moved from the suburbs into a former cinema near the center of Reading. At the time, its congregation was small and not varied. ‘We moved in as a white middle-class church,’ says Neville Hollands, a senior pastor. These days Lifespring has members born in more than 40 countries. The diversity of its congregation is reflected in the thicket of flags on both sides of the stage during Sunday services, where 300-odd people praise Jesus to the accompaniment of drums and power chords. Immigration has transformed Lifespring Church, Reading, and Britain itself. The 2021 census of England and Wales showed that 10 million people, one-sixth of the population, were born outside the United Kingdom. That was a higher share than in America or any large European country except Germany. The proportion is almost certainly higher still today.”
“The country manages to attract people from a large and ever-growing range of countries. Although the popular image of a migrant is a desperate young man floating across the English Channel, Britain’s foreign-born residents are frequently middle-class and slightly more female than male. They quickly get up to speed economically, and their children do strikingly well in school.”
“After Britain left the E.U. in 2020, its immigration rules changed. Continental Europeans, who had been able to move and work freely, were henceforth treated like everyone else. Salary thresholds for work visas were lowered, making it easier for non-Europeans to get them. The result has been a rise in overall immigration and a big shift in direction. If the first wave of post-war immigration came from the Commonwealth and the second from Europe, the current wave is from everywhere.”
“One magnet can be seen in the center of Reading, in the jumble of buildings that make up the Royal Berkshire hospital. The hospital and its associated NHS trust employ 1,800 non-Britons, with Filipinos, Indians, Nigerians, Kenyans, and Portuguese the largest groups. It relies heavily on foreign-born nurses, because Britain does not produce enough. ‘Where are our nurses coming from if they’re not coming from abroad?’ asks Arran Rogers, who works on non-medical recruitment.” READ MORE
STARTUPS
A new crop of startups is encouraging people to get out and meet in real life (also known as IRL): “At a rooftop bar in New York City, small groups of six people — some previously strangers until hours earlier when they met for the first time over dinner — grabbed drinks and gabbed. ‘Are you here with 222?’ people asked one another, quickly jumping into conversations about where they're from, how they've tried (and maybe failed) to make friends as adults, and where they ate dinner an hour earlier. One of several emerging IRL-social startups, 222 launched in 2021 with a series of dinners in Los Angeles. After raising $2.5 million following its stint as a Y Combinator startup, the company expanded to New York and launched its app, which charges users a one-time fee or a recurring subscription to unlock events where they meet their closest matches over dinner.”
“Apps like 222, Saturday, The Breakfast, and Timeleft are helping people connect offline, but with different twists than traditional dating and social apps like Bumble and Meta. The idea, founders say, is that Big Tech has failed them when it comes to helping them connect with people.”
“Reading Rhythms, a New York-based organization that hosts weekly reading parties, has grown primarily from its Instagram account, which has more than 23,000 followers. The group hosts ‘reading parties’ at bars and event spaces with the goal of helping people connect through reading. For a couple of hours and about $20 on weeknights, the events switch between time for quiet reading and socializing as a group.”
“There is also a growing cottage industry of new event startups that help organize IRL events with features aimed at Gen Z and millennials — like group chats, photos, and avatars — that compete with more traditional event planning platforms like Meetup, Bumble, Facebook Events, and Eventbrite.” READ MORE
THE 21 HATS PODCAST
I Don’t Hate Regulation, But …This week, in episode 194, Shawn Busse, Jay Goltz, and Jaci Russo talk about the new rules that may—or may not—ban non-compete clauses, increase the number of employees who must be paid overtime, and eliminate TikTok in the U.S. How much would those changes matter to each of their businesses? What might the owners do differently? Do the changes make sense? And why does it so often seem as if it’s small businesses that get caught in the cross-fire when the government tries to rein in abusive big businesses? On the question of non-competes, Shawn says he thinks they are often used by lazy businesses that haven’t done the real work of building loyalty with employees and customers.
You can subscribe to the 21 Hats Podcast wherever you get podcasts.
Thanks for reading, everyone. — Loren