How Much Profit Should Your Business Make?
How Much Profit Should Your Business Make?
In our latest podcast, Jay Goltz talks about singing the entrepreneur’s lullaby. Every year, Jay tells himself that next year is going to be the year he finally hits his profit goals.
Good Morning!
Here are today’s highlights:
Meet the 21 Hats Podcast team in Chicago!
Maybe Dan Price shouldn’t have been telling other owners how to run their businesses.
The “junkification” of Amazon is having an impact on the rest of ecommerce, too.
The party for used car dealers is coming to an end.
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.
21 HATS LIVE FROM CHICAGO
Join us for the very first 21 Hats Live event: This intimate, three-day gathering is limited to 20 business owners/CEOs. It starts with dinner on Wednesday, May 17, and runs through lunch on Friday, May 19. It will feature lots of opportunities to engage with other owners on similar journeys. We’ll have two deep-dive peer group sessions, for which you’ll help choose the topics. Bring your own challenges! You’ll also get to hang with 21 Hats Podcast team including Paul Downs, Jay Goltz, Liz Picarazzi, Sarah Segal, and Dana White. And you’ll participate in the taping of a podcast episode.
Plus: Tour Jay Goltz’s retail operation. Take an architectural cruise on the Chicago River. And make connections that will last a lifetime.
Where: Chicago.
When: May 17-19.
Fee: $2,750. (All meals, activities included. Travel, hotel not included.)
Sign up: Reply to this email with any questions or to reserve your spot.
PROFILE
It turns out Dan Price, the celebrity CEO who’s been telling other owners how to run their businesses, may not have been doing such a great job with his own: “Price was 19 and full of grand ambitions to slash credit card processing fees for small businesses when he launched Gravity in 2004. Now 38, Price has branded himself as a model corporate leader who puts employees’ interests ahead of his own. But, in interviews with The Seattle Times, more than two dozen former Gravity employees said Price became obsessed with curating his compassionate persona, even if it didn’t match the person behind the viral posts. As CEO, Price cultivated a sense of fear and built a company that, as one former employee put it, was ‘just there to get Dan famous.’”
“Price resigned as CEO from Gravity in August following accusations of assault and rape that have resulted in two police investigations. Price denies those accusations. Whether he remains a force at Gravity, a 200-plus person company based in Seattle’s Ballard neighborhood, remains to be seen.”
“Over the past five months, The Times contacted 75 people close to Gravity or Price. About 40 individuals shared their experiences. In those interviews and in correspondence, as well as police reports, court documents, and internal communications, a picture emerges of Gravity, a small company that drew an outsized amount of attention with Price at the helm.”
“Gravity offered workers pay raises and opportunities to get in on Seattle’s tech boom, but, many former employees said, it came at the cost of stressful days, sleepless nights, and lasting memories of working for a man six former employees described as a ‘manipulative’ boss.” READ MORE
ECOMMERCE
The Amazon experience is getting worse, and it’s taking ecommerce with it: “Late last year, The Wall Street Journal reported that Amazon’s customer satisfaction had fallen sharply in a range of recent surveys, which cited COVID-related delivery interruptions but also poor search results and ‘low-quality’ items. More products are junk. The interface itself is full of junk. The various systems on which customers depend (reviews, search results, recommendations) feel like junk. This is the state of the art of American e-commerce, a dominant force in the future of buying things. Why does it feel like Amazon is making itself worse? Maybe it’s slipping, showing its age, and settling into complacency. Or maybe — hear me out — everything is going according to plan.”
“The proliferation of semi-branded discount goods on the platform is attributable to a few factors. One is that Amazon, for sellers, has a lot in common with a social-media network or a search engine in that its often intentionally inscrutable preferences must be catered to constantly, even when they don’t really make sense and even if they’re detrimental to the product itself.”
“Another is Amazon’s aggressive recruitment of sellers based in China, who, according to some estimates, accounted for nearly half of all businesses on the platform in 2020. Plenty of overseas sellers offer quality products, while many domestic sellers effectively run Chinese import businesses, but the factory-direct advantage is usually about price with (often acceptable and accepted!) trade-offs in quality control, customer service, and original design.”
“If you understand Amazon as an aspiring megascale infrastructure company — a provider of systems, services, capacity, and labor — its junkification makes sense. Amazon hasn’t been acting like a store for a while. In its ideal future, selling things to people is everyone else’s problem. And so is Amazon.” READ MORE
TAXES
Gene Marks says it’s still possible to claim the remarkably generous Employee Retention Tax Credit—but there are a lot of scammers out there: “Is your small business owed $26,000 from the U.S. government for every worker you employ? That’s the pitch you’re probably getting in your inbox from services all around the country who claim that — because of the Employee Retention Tax Credit — the money is owed to you. ‘Some of these companies can be really aggressive, and some are taking advantage of people,’ warned Kristen McCabe, a Covid relief program specialist with Brinker Simpson & Co. in Media [Pa.]. ‘They’re sending these notices that your company could be eligible for millions of dollars, and our clients keep calling us about it. You have to be careful.’ Michael Jamgochian, a certified public accountant based in West Chester [Pa.] agreed. ‘For some of these firms, it’s been a money grab, and a lot of it is not legitimate.’”
“The abuse has caught the attention of the Internal Revenue Service, which warned businesses in October to ‘be cautious of advertised schemes and direct solicitations promising tax savings that are too good to be true.’”
“While $26,000 per employee does sound too good to be true, and yes, there are fraudsters out there, the ERTC is a legitimate tax credit. And your business may be entitled to at least some of the money promised.” READ MORE
MARKETING
Jeff Foulk was having trouble getting people interested in his boating app, which features color-coded routes based on depth and social networking that recommends restaurants and connects boaters: “So when Mr. Foulk’s daughter, Megan, tagged along to a boat show in Chicago in January and saw that some attendees were bypassing her father’s booth as he tried to tell them about Argo, she decided to turn to one of the apps on her phone: TikTok. As any 20-year-old would do, she pulled out her phone and started recording as one person after another walked by her forlorn father, ignoring his offers of brochures. She added a wistful, instrumental version of the Wiz Khalifa song ‘See You Again’ and put it out to her TikTok followers.”
“‘Help blow up my dad’s boating app,’ the caption on the video read. ‘He’s worked so hard on it and just wants people to try it out.’ The call for downloads worked.”
“On Jan. 14, the day the video was posted, Argo leaped from No. 339 on Apple’s U.S. App Store ranking of the top free navigation apps to No. 3, according to Randy Nelson, director of market insights at Data.ai, which provides analysis of the mobile app market. The next day, it reached No. 1.”
“‘This is crazy,’ Mr. Foulk said. ‘There’s a lot of good things going on right now.’” READ MORE
HUMAN RESOURCES
How tight is the labor market? It depends on where you are: “North Dakota’s oil and energy boom has kept the state’s economic outlook bright — but it also has the tightest labor market in the country. There are about 3.1 open jobs for every unemployed person in the state as of the end of November, according to Bureau of Labor Statistics data analyzed by The Business Journals. There were about 9,262 unemployed people in North Dakota, and about 29,000 job openings. That tight hiring market meant workers there saw the biggest wage gains of any state, with wages growing 11.3 percent in November over the same time last year, according to payroll and benefits provider Gusto, which analyzed data from hundreds of thousands of primarily small and medium-sized businesses.”
“Other states joining North Dakota with tight job markets include New Hampshire, with 2.74 job openings for every unemployed worker, and Utah, with 2.7 job openings per unemployed worker. Nebraska and South Dakota both had 2.6 job openings per unemployed worker.
“Delaware, with 1.1 job openings per unemployed worker, had the lowest ratio, then Illinois at 1.24 and Washington at 1.29.” SEE WHERE YOUR STATE RANKS
Mark Zandi says wage inflation is slowing:
RETAIL
Reality has set in for used-car dealers: “About a year ago, the used-car business was a rollicking party. The coronavirus pandemic and a global semiconductor shortage forced automakers to stop or slow production, pushing consumers to used-car lots. Prices for pre-owned vehicles surged. Now, the used-car business is suffering a brutal hangover. Americans, especially people on tight budgets, are buying fewer cars as interest rates rise and fears of a recession grow. And improved auto production has eased the shortage of new vehicles. As a result, sales and prices of used cars are falling and the dealers that specialize in them are hurting.”
“According to Cox, used-car values fell 14 percent in 2022 and are expected to fall more than 4 percent this year. That shift means many dealers may have no choice but to sell some vehicles for less than they paid.”
“The buying and selling of used cars is an enormous business. Cox Automotive expects about 36 million used vehicles will be sold in the United States this year. Fewer than half as many new cars and trucks are expected to be sold in 2023.”
“The used-car business is made up of thousands of small outlets, many of them family businesses. CarMax is the largest player in the market but accounts for only a sliver of total sales.
“Founded in 1993, CarMax tried to make the fragmented used-car business more efficient in the same way Blockbuster once sought to do with the video-rental business.” READ MORE
STARTUPS
As the tech sector flails, both employees and investors are flocking to climate startups: “As tech companies slash perks and cut jobs, the downturn has spurred a wake-up call among many workers, causing them to question whether their company’s role in society — selling ads or selling stuff, often — was actually making the world a better place. The result? More are now flocking to climate start-ups, just as investors pour money into the field. Last year, climate start-ups in the United States raised nearly $20 billion, topping 2021’s high of $18 billion and nearly tripling 2020’s $7 billion, according to Crunchbase, a data provider. At least 83 climate-focused companies around the world are worth more than $1 billion, according to HolonIQ, a research firm.”
“When Arebeth Pease was laid off from the tech start-up MasterClass last year, she could have had her pick of jobs. But so many tech companies’ missions rang hollow, she said, and many were creating more problems than they were fixing.”
“Ms. Pease, 42, was drawn instead to Span, a start-up that makes smart home electrical panels and is among a class of fast-growing companies aiming to combat climate change. She joined Span in September as an operations manager, with the start-up’s focus on slowing the effects of climate change as the main selling point. ‘We’re actually doing work that matters,’ she said.”
“One effort, Climate Draft, aims to help climate start-ups find advisers, investors and employees from the tech industry. More than 3,000 recently laid-off tech workers have signed up to learn about jobs at climate companies, the company said. Another online community, Work on Climate, has ballooned to 16,000 members since it began in 2020. People use it to network and learn about jobs.” READ MORE
POLICY
More than $5 billion in Covid aid may have gone to businesses using phony Social Security numbers: “The suspected wave of grift targeted two of the government’s most generous emergency initiatives: the Paycheck Protection Program, known as PPP, and the Economic Injury Disaster Loan, dubbed EIDL. Started under President Donald Trump — and managed by the beleaguered Small Business Administration — the roughly $1 trillion in loans and grants aimed to help cash-strapped companies stay afloat financially during the worst economic crisis since the Great Depression. But the money also served as a wellspring for criminal activity, as malicious actors took advantage of SBA and its poor oversight to bilk Washington out of seemingly massive sums. In the latest example, the PRAC found that the SBA failed to prevent a wave of applications from collecting federal money using suspect Social Security numbers.”
“The speed at which Washington doled out the money — and the long-known funding gaps in government oversight — also created the conditions ripe for theft and misuse, The Post found in its year-long investigation, the Covid Money Trail.”
“The full extent of taxpayers’ losses remains unknown, even to Washington, as the time-consuming, expensive work continues to find and prosecute pandemic-related crimes.” READ MORE
THE 21 HATS PODCAST: DASHBOARD
Getting an SBA Loan with No Down Payment: This week, 21 Hats columnist and finance expert Ami Kassar assesses the state of small business lending. Among other things, Ami discusses why it’s important to manage your EIDL loan carefully, how much of a line of credit every business should have, how to get a zero-percent-down loan from the SBA, and how much progress he has made toward firing himself.
You can subscribe to the 21 Hats Podcast wherever you get podcasts.
Thanks for reading, everyone. — Loren