Finding the American Dream on a Chinese App
If TikTok is banned in the United States, there are going to be some very unhappy entrepreneurs.
Here are today’s highlights:
The number of workers making less than $15 an hour has been halved.
What brand would want to set up a new supply chain in China right now?
Did you know you can buy out a partner with an SBA loan without putting any money down?
Gordon Moore became a billionaire as a result of an initial $500 investment in a fledgling microchip business.
If TikTok is banned, there will be some very unhappy entrepreneurs: “When Lauren Wyman felt crushed under the weight of her corporate finance job in 2019, she found solace in launching a small goth and alternative clothing business. She initially made Facebook and Instagram accounts for her shop, Dark Mother Clothing, but generated only $5,000 to $6,000 in sales the first year. Wyman, 32, joined TikTok at the start of the pandemic, launched new products, and posted a couple of videos that went viral. In 2022, she grossed $217,000. ‘A part of what people have done on this app is created their own slice of the American dream that is preached so much about,’ said Wyman, who’s based in Arizona.’”
“An outright ban of the app would be a devastating blow to many of the small businesses that have turned to TikTok to reach potential customers instead of shelling out for more traditional and pricey forms of marketing. Kellis Landrum, co-founder of Los Angeles marketing agency True North Social, said Facebook and Instagram are ‘pay-to-play’ platforms that don’t give as much of a return on investment.”
“‘TikTok offers the broadest organic reach of any of the channels right now,’ Landrum said. ‘If you’re very successful on TikTok, that’s probably most of what you’re focusing on because [as] a small business, you can’t afford to attack marketing on a bunch of different fronts at the same time.’”
“Elyse Burns, who runs a stationery and home goods design company she launched in college in 2015, said she’s seen a direct correlation between her TikTok videos and sales. After posting a video featuring a shipment of day planners that got 2.9 million views in June 2022, she sold more than 2,000 day planners in two days.”
“Last year, she did $1 million in sales through her website, which receives traffic from TikTok and Instagram. She devotes four hours a day to those two platforms but has since expanded to doing wholesale and opening a storefront in Durham, N.C., to diversify her revenue.” READ MORE
For many, the work-from-home era is ending: “Some 72.5 percent of business establishments said their employees teleworked rarely or not at all last year, according to a Labor Department report released this week. That figure climbed from 60.1 percent in 2021. The survey showed about 21 million more workers on-site full time in 2022, compared with the prior year. An establishment is defined as each business location—such as an individual restaurant in a chain. The new number is also close to the share of establishments—76.7 percent—that said they had no employees teleworking before the Covid-19 pandemic, and that were open in February 2020, the Labor Department said. Employers recently have begun pushing harder to get staff to work on-site more often, as recession fears prompt an increased emphasis on worker productivity.”
“A particularly stark drop played out in the finance sector, including banks and brokerages. The share of financial establishments operating hybrid dropped by half, to 22 percent in 2022 from 44.9 percent in 2021.”
“Remote work, however, isn’t likely to entirely disappear. Some 13 percent of current job postings are for remote positions, according to staffing firm ManpowerGroup. That is down from 17 percent in March 2022 but well above the pre-pandemic level of 4 percent.”
“Remote work remained fairly common last year in some jobs that traditionally were done in an office. In the information sector, which includes tech and media firms, 67.4 percent of establishments said their staff worked remotely some or all of the time. In the professional and business sector, which includes law and accounting firms, the share was 49 percent.” READ MORE
The number of workers making less than $15 an hour has been halved: “Workers have been slow to return to notoriously low-paid jobs in restaurants, hotels, day cares, retail stores, and home health-care services. Even when companies can find people, holding onto them is a challenge. Workers are still quitting jobs in hospitality and retail at far higher rates than before the pandemic. Social media is helping spread news that better-paying jobs exist in warehouses, construction, and remote office work.”
“Job seekers increasingly don’t even search for jobs that pay less than $20 per hour. Companies have been forced to respond. Nearly half of workers (who weren’t self-employed) earned under $20 an hour in 2019. That has fallen to just over a third of workers, according to [Ben Zipperer, an economist at the Economic Policy Institute].”
“To put it another way, nearly 16 million Americans were lifted above the $20-an-hour threshold since the pandemic began.” READ MORE
THE 21 HATS PODCAST: DASHBOARD
Gene Marks Is Not a Fan of Mandated PTO: This week, Gene explains why he hates the new Illinois law that requires businesses of any size to offer employees up to 5 days a year of paid time off — even though he’s not based in Illinois and he offers his own employees quite a bit more than 5 PTO days a year. He also suggests six things all owners should do if they have any thought of one day selling their business. And he discusses his list of 10 tax-related numbers that he says every owner should know.
You can subscribe to the 21 Hats Podcast wherever you get podcasts.
One of the nation’s largest regional banks is buying much of SVB: “First Citizens, based in Raleigh, N.C., was the 30th largest U.S. bank as of Dec. 31, 2022, with $109 billion in assets, according to the Federal Reserve. Monday’s deal would put the lender in the top 25 U.S. banks in terms of assets. The FDIC agreed to share any of First Citizens’ losses or potential gains on SVB’s commercial loans. Overall, the FDIC estimated the failure of SVB will cost a federal insurance fund it oversees about $20 billion, or roughly 10 percent of the bank’s assets before its failure.”
“At the same time, deposits continue to depart smaller U.S. banks following a surge in inflows during the Covid-19 pandemic. The outflows are going in part to the largest U.S. lenders, many of which are viewed as enjoying implicit government backing.” READ MORE
Ami Kassar lists some SBA tricks you may not know about:
“You can buy out a partner with an SBA loan and not put any money down.”
“If you buy a business in the same industry as you are currently in, you can do this with no money down.”
“Some SBA lenders will do projection-based loans.” READ MORE
A lot of businesses would like to stop making things in China: “[Taylor] Shupe and his fellow start-up founders divined that high-end socks were a retail frontier waiting to be exploited, a mass commodity that could be transformed into a platform for individual expression. But expression entailed values. He understood that the Americans whose feet he was wooing were increasingly prone to viewing China as unsavory, and even malevolent.”
“He opened his new factory, in Oceanside, Calif., in the summer. On a recent afternoon, only 20 people were working there, wielding machinery to apply decorative designs to blank socks imported from China. But Mr. Shupe plans to more than double his work force by the end of the year.
“‘We’re headed to a state of hyper-localization,’ he said as he zipped down the freeway toward the factory in his Tesla, at alarming speed. ‘The big disruptions that have occurred over the past three years have definitely exposed the sort of risk that we didn’t think existed. Which brands want to set up new supply chains in China now?’”
“China was a damaging detail in the story of Mr. Shupe’s product. Manufacturing socks in the United States was part of a new narrative, one which puts his customers on the right side of history, investing in American communities and responding to climate change by limiting carbon emissions from shipping containers streaming across the ocean.”
“The costs of making socks in California remains significantly higher than manufacturing in China, Mr. Shupe acknowledges. That basic reality is not likely to change any time soon and leaves the fate of his proposition uncertain. Still, he is betting that Americans will ultimately prove willing to pay more for products made at home.” READ MORE
Many car dealers believe they are facing an existential crisis: “Some are training staff to be EV experts as customer demand grows for electric cars. Others are emulating firms like Carvana and moving some parts of the buying process online. Dealers also are investing in expensive renovations, building features like lounges and dog parks to lure shoppers to their showrooms. As they experiment with new strategies and customer perks, some dealers remain uncertain about what the future of selling cars will look like.”
“‘When COVID first hit, nobody knew exactly what the new car business was going to look like,’ Scott Kunes, COO of Kunes Auto and RV Group in the Midwest, told Insider. ‘Same thing with EVs.’”
“Automakers are pressuring dealers to quickly get up to speed and help make their multi-billion-dollar EV ambitions a reality, with GM even telling Buick dealers to go all-in on EVs or get out. Yet they are still relying on dealers, in the near term, to sustain the majority of their business through gas-powered car sales and service.”
“Some dealers are having a hard time committing to changes when the return on investment — especially with EVs — isn't yet clear. ‘The manufacturers are asking us to make large investments in our facilities, and we're willing to do it, once we have a clear and concise plan,’ Kunes said. But he said the dealership hasn't been provided with enough EVs to justify the changes.”
“‘I mean, if we're only going to get 25 EVs a year, how can you ask us to invest $1.2 million on our facilities?’ he asked.” READ MORE
Getting into the new crop of luxury gyms can be harder than getting into college: “Today, those coveting a lavish workout experience may do everything short of getting on their knees and begging to be accepted into application-only gyms. In the last four years, about a dozen fitness centers have opened nationally that require letters of referral, long-winded applications, interviews, and a deep dive through your social media to decide if you are fit to be fit.”
“Memberships range from $595 to $2,750 per month and offer everything from cryotherapy, IV drips, a hyperbaric oxygen chamber, a lymphatic compression suit, meditation classes, sound baths, and more.”
“Mr. Atwood, the consultant, said the exclusive gym concept emerged after the evolution of discount gyms versus the boutique clubs. Low-cost gyms such as Planet Fitness and XSport Fitness, which charge around $49 for monthly memberships, are highly profitable business models because they cram as many people into the gyms as possible.”
“Then along came boutique fitness centers like Barry’s Boot Camp (about $40 per class) or Orange Theory (about $150 per month), which paved the way for exclusive upscale clubs.” READ MORE
FOOD & BEVERAGE
Uber Eats is removing thousands of online-only restaurants from its app this week: “So-called virtual brands—delivery businesses without physical storefronts—mushroomed on delivery apps during the pandemic, becoming a lifeline for eateries who used their empty kitchens and idle staff to test new ideas and make up for lost sales. The number of virtual brands on Uber Eats quadruped to more than 40,000 this year from over 10,000 in 2021. They now account for 8 percent of Uber Eats’ storefronts listed in the U.S. and Canada but less than 2 percent of bookings in the region.”
“Diners are ‘effectively seeing 12 versions of the same menu’ on the app, [John Mullenholz, who oversees the business at Uber Eats]. ‘It’s fair to say that kind of erodes consumer confidence.’”
“Uber Eats plans to remove 5,000 online storefronts, covering about 13 percent of virtual brands in North America. Among those scheduled to be removed: 12 virtual brands selling identical breakfast burritos from a Colorado sports bar; 14 brands serving the same sandwiches from a New York City deli; and online-only options from a San Francisco-based Pakistani restaurant that, at one point, replicated its menu 20 times.” READ MORE
Gordon E. Moore, a co-founder and former chairman of Intel Corporation: “Along with a handful of colleagues, Mr. Moore could claim credit for bringing laptop computers to hundreds of millions of people and embedding microprocessors into everything from bathroom scales, toasters and toy fire engines to cell phones, cars, and jets. Mr. Moore had wanted to be a teacher but could not get a job in education. He later called himself an ‘accidental entrepreneur,’ because he became a billionaire as a result of an initial $500 investment in the fledgling microchip business, which turned electronics into one of the world’s largest industries.”
“In 1965, in what became known as Moore’s Law, he predicted that the number of transistors that could be placed on a silicon chip would double at regular intervals for the foreseeable future, thus increasing the data-processing power of computers exponentially.”
“He added two corollaries later: The evolving technology would make computers more and more expensive to build, yet consumers would be charged less and less for them because so many would be sold. Moore’s Law held up for decades.”
“Bitten by the entrepreneurial bug, Mr. Moore and Mr. Noyce decided in 1968 to form their own company, focusing on semiconductor memory. They wrote what Mr. Moore described as a ‘very general’ business plan. ‘It said we were going to work with silicon,’ he said in 1994, ‘and make interesting products.’” READ MORE
Jacqueline Gold, who recognized that her family business’s male-oriented erotic offerings were missing an important part of the market: “In 1972, her father, David Gold, and his brother, Ralph, had bought two sex shops that had been founded a year or two earlier by the businessman Michael Caborn-Waterfield and been billed as ‘sex supermarkets.’ (He named the shops for his secretary and occasional lover, Annice Summers.) By the time Ms. Gold went to work for her father at 19 as an office assistant, the company was ‘dealing largely in top-shelf magazines for the raincoat brigade,’ as The Mail Online put it in 2018. ‘Although the head office was just like any other business,’ Ms. Gold told The Birmingham Post of England in 1995, ‘frankly, it was essentially run by men. The customers were men, and that annoyed me in a way. I felt angry there was all this for men and nothing for women.’”
“She set about changing that, beginning by updating the thinking of the board of directors. ‘Their attitude was, Women aren’t interested in sex,’ Ms. Gold said. She proved them wrong, marketing sexy lingerie, swimwear, sex toys, and novelty items to women, who, she discovered, were eager for them.”
“Among her biggest initiatives, introduced in 1982, was the Ann Summers party, similar to a Tupperware party, where a host sells kitchen products in her home, except that the products being sold at an Ann Summers party were sex-related.”
“Soon there were hundreds of Ann Summers parties a week, then thousands. The company also built up its network of stores; there are now scores of them in Britain and beyond.” READ MORE
Thanks for reading, everyone. — Loren