Congress Is Looking into the Silver Tsunami
Seventy percent of the businesses that are put on the market fail to sell. And half of them will face involuntary closure.
Here are today’s highlights:
A reminder: You really should talk to your customers.
Don’t look now, but shipping costs are soaring once again.
Fully remote workers are more likely to quit.
Yelp offers more evidence that there’s been a boom in new businesses.
On Wednesday, business owners testified before Congress about the Silver Tsunami: “Some common challenges companies face include not understanding their exit options, not establishing a formal exit strategy, or not propping up any type of succession plan to begin with. Adding fuel to the fire is the number of small-business owners who have hit the age where they're starting to think about retirement more closely. Nearly three million U.S. businesses are owned by someone 55 or older, according to Project Equity, an Oakland, California-based nonprofit focused on economic resiliency. Those businesses employ some 32.1 million workers and are responsible for generating $1.3 trillion in payroll.”
“Scott Snider, the co-owner of the business transition company Exit Planning Institute in Westlake, Ohio, underlined how the odds for companies are even worse when it comes time to look for a buyer. Seventy percent of companies that go to market don't sell, Snider pointed out, and 50 percent will face involuntary closures ‘due to external elements that force a business owner to sell or close.’”
“Snider suggested to the committee that more educational programming, along with coaching, be put in front of small-business owners so they can get ahead of exit strategy planning early on. The logic is that if entrepreneurs learn about their succession strategies earlier on, they're more readily prepared and can avoid the worst-case scenario.” READ MORE
Lou Mosca says there are real advantages to making a personal connection with your customers: “Call any financial institution, pharmacy, or cable company, you get stuck in a directory where you have to patiently listen to a cycle of every department to get to the person you want to speak to. And if you’re not careful, you get stuck in a loop. This sounds easy and like a no-brainer, but make your business as personal as possible by having someone pick up the phone. At American Management Services, we have someone pick up the phone within four rings. As the owner, you mustn’t be afraid to pick up a call or two. It’s pertinent to talk to the people that count on you. Forget about what customer service has turned into and make personal contact king.”
The FTC is looking into the AI investments of Amazon, Google, and Microsoft: “These deals have allowed the big companies to form deep ties with their smaller rivals while dodging most government scrutiny. Microsoft has invested billions of dollars in OpenAI, the maker of ChatGPT, while Amazon and Google have each committed billions of dollars to Anthropic, another leading A.I. start-up. Regulators have typically focused on bringing antitrust lawsuits against deals where the tech giants are buying rivals outright or using acquisitions to expand into new businesses, leading to increased prices for consumers and other harm, and have not regularly challenged stakes that the companies buy in start-ups.”
“The F.T.C.’s inquiry will examine how these investment deals alter the competitive landscape and could inform any investigations by federal antitrust regulators into whether the deals have broken laws.”
“Brad Smith, Microsoft’s president, said in a social media post in December that the company had ‘forged a partnership with OpenAI that has fostered more AI innovation and competition, while preserving independence for both companies.’ He said the arrangement was ‘very different from an acquisition.’” READ MORE
AI is focusing attention on the sleepy Copyright Office within the Library of Congress: “The attention stems from a first-of-its-kind review of copyright law that the Copyright Office is conducting in the age of artificial intelligence. The technology — which feeds off creative content — has upended traditional norms around copyright, which gives owners of books, movies and music the exclusive ability to distribute and copy their works. The agency plans to put out three reports this year revealing its position on copyright law in relation to A.I. The reports are set to be hugely consequential, weighing heavily in courts as well as with lawmakers and regulators.”
“The Copyright Office’s review has thrust it into the middle of a high-stakes clash between the tech and media industries over the value of intellectual property to train new A.I. models that are likely to ingest copyrighted books, news articles, songs, art, and essays to generate writing or images.”
“That law is now a topic of hot debate. Authors, artists, media companies, and others say the AI models are infringing on their copyrights. Tech companies say that they aren’t replicating the materials and that they consume data that is publicly available on the internet, practices that are fair use and within the bounds of the law.”
“News Corp, which publishes The Wall Street Journal and The New York Post, implored the office to ‘not lose sight of this simple truth: Protecting content creators is one of copyright law’s core missions.’” READ MORE
Shipping costs are soaring again: “For about two months, a barrage of missile and drone attacks in the Red Sea by Houthi militants has posed a difficult choice to shipowners using the Suez Canal: risk an airborne strike and pay sharply higher insurance rates, or forgo the canal and take the longer route around Africa, snarling schedules and entailing higher fuel charges. The attacks — at a choke point that handles 12 percent of global trade, including nearly one-third of the world’s container ship traffic — have already forced some shutdowns at European auto plants and raised fears of a surge in consumer prices.”
“For shipping companies, costs have already increased. A composite measure of global shipping costs, the Drewry World Container Index, has more than doubled since late last year.”
“And using the Red Sea now requires expensive war risk insurance. It’s a specialty that a group of brokers and underwriters centered in London offer.”
“It’s unclear if escalating shipping costs will be reflected in consumer prices, especially in Europe, where economies are barely growing. Weak consumer demand means businesses will face pressure to absorb extra shipping costs in their profit margins ‘instead of passing price rises to the consumer,’ analysts at Morgan Stanley said this week.” READ MORE
New data shows that remote workers are the first to get laid off. They’re also more likely to quit: “Workers logging on from home five days a week were 35 percent more likely to be laid off in 2023 than their peers who put in office time, according to an analysis of two million white-collar workers conducted by employment data provider Live Data Technologies. The analysis showed 10 percent of fully remote workers were laid off last year, compared with 7 percent of those working in an office full time or on a hybrid basis.”
“Ron Porter, a Korn Ferry consultant on workforce issues, says he is hearing from clients that fully remote workers are getting cut more frequently than their in-office and hybrid colleagues. Part of it, he says, is natural human reluctance managers feel to cut those they have to face in person.”
“It’s also possible that workers who are remote 100 percent of the time may be more marginal to start with, he adds, with managers preferring to keep their strongest employees doing the most important tasks close to them at the office when possible.”
“Remote workers are also more likely to quit. According to Live Data Technologies, 12 percent of fully remote workers left their company and began a new job within two months in 2023, compared with 9 percent of those who worked on a hybrid or in-person basis.” READ MORE
Business Insider is laying off staff and refocusing on its business coverage: “Business Insider said on Thursday that it was laying off 8 percent of its staff, the latest in a wave of sharp job cuts in the media industry this month. Barbara Peng, Business Insider’s chief executive, said in an internal note that the job cuts were part of a plan, announced late last year, to shift focus solely to news coverage of business, tech and innovation. ‘We have already begun to refocus teams and invest in areas that drive outsize value for our core audience,’ Ms. Peng wrote. ‘Unfortunately, this also means we need to scale back in some areas of our organization.’”
“In November, the company changed its name from Insider back to Business Insider, and its co-founder Henry Blodget stepped aside as chief executive. At the time, the publication’s top editor, Nicholas Carlson, wrote that it was a ‘new era’ for the company: ‘It’s now about recommitting to what we do best.’” READ MORE
Yelp data offers more evidence that we’re experiencing a boom in business starts: “Last year, Americans started businesses in record numbers, with the IRS recording nearly 5.5 million new-business applications by December—double the pre-pandemic rate. It’s a stunning turnaround for American entrepreneurship after decades in which the economy seemed to become dominated by large corporations and economists bemoaned its declining ‘dynamism.’ Business-review website Yelp reported 20 percent more openings last year than in 2022, with big growth in home services and food- and travel-related businesses. Overall, the figures show 40 percent more businesses on the platform than what was normal pre-pandemic.”
“‘Last year there was so much anticipation about an economic recession, but entrepreneurs helped defy those predictions and set a new all-time high for business openings on Yelp,’ Samantha Auerbach, data science manager at Yelp, said in a statement.”
“Many small businesses were able to start and thrive thanks to the endurance of remote work, Pollak said. While the phenomenon is a headache for corporate leaders, who prefer their teams onsite, and urban downtowns still struggling with empty commercial space, the remote paradigm has made it easier to both start a business and hire for it, said Pollak.”
“‘The costs of starting a new business are lower now, because you can have access to talent across the entire country, and low-cost areas of the country,’ Pollak told Fortune. ‘It’s not expected anymore that you must, as a law firm, have an office in the most expensive part of the city. The norms have changed.’” READ MORE
THE 21 HATS PODCAST
We’re Making Good Money. I’m Not Sure How: This week, Jay Goltz, Jennifer Kerhin, and Liz Picarazzi discuss their efforts to get a better grasp of what drives their profits. They ask how much they should manage their finances themselves, and how much they should rely on an accountant or a fractional CFO. When does delegation become abdication? Jennifer says she’s benefitted from hiring a fractional CFO who has taken an active leadership role, including setting up a database that helps Jennifer see in real time whether the fees she’s charging cover the labor she’s deploying. “Whatever she's charging me,” says Jennifer of her CFO, “it's absolutely worth it.” Liz, meanwhile, thinks she should be doing more herself. And Jay says he was paying big bucks for a full-time CFO until late last year. “And it was a complete waste of money,” he says, which is why he’s decided not to replace her.
Plus: Liz reveals her secret strategy for marketing directly to municipal government officials, some of whom have started to use the term “Citibin” generically. And the owners respond to a question from the head of a cost-reduction service who wonders why she’s struggling so much to get business owners to try her risk-free service.
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Thanks for reading, everyone. — Loren