I Don’t Hate Regulation, But …
In our latest podcast episode, the owners talk about what a slew of government actions would mean for their businesses.
Good Morning!
Here are today’s highlights:
An increase in the minimum wage spurs the adoption of AI.
Forty percent of small businesses in California say TikTok is crucial to their operation.
The SBA is making it easier for people with criminal records to borrow money.
Carmakers need to figure out how to market EVs to Republicans.
THE 21 HATS PODCAST
This week, 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.
“Plus: Do Shawn, Jay, and Jaci ever regret starting a business? Have there been times when they’ve thought about trying something else? And also, are the terms “business owner” and “entrepreneur” interchangeable? Or do they carry different connotations? Might there be a better term? Jay thinks there is.
You can subscribe to the 21 Hats Podcast wherever you get podcasts.
ARTIFICIAL INTELLIGENCE
Fast-food operators in California are turning to AI: “It didn’t take long for Harshraj Ghai to respond to the impact of California’s new $20 an hour minimum wage for his 3,700 fast-food employees. Ghai and his family operate 180 Burger Kings, Taco Bells, and Popeyes chicken restaurants across the state, and one of the first things they did after the law took effect April 1 was to start capping workers’ hours to avoid overtime pay. Also, they’re closing some outlets a little earlier and opening others a bit later to avoid paying workers for less profitable periods. But the biggest thing Ghai and his family are doing does not directly involve workers at all: They’ve speeded up and expanded their use of technology, especially AI.”
“Right now, they’ve moved up by several years their plans to install self-service kiosks at all of their locations, including 25 out of state. But what has Ghai most hopeful about offsetting the higher labor costs is to have AI handle customers’ orders made at the drive-through. He’s testing the machine-learning system this month at a few locations and hopes to roll it out company-wide by this time next year.”
“Not that AI-led drive-through is quite ready for prime time. As it is today, the system can have trouble with people’s accents and ambient noise, making it hard to recognize speech and translate it into text. Pilot programs run by McDonald’s and others thus far often have backed up the AI technology with an employee, like the Wizard of Oz man behind the curtain. The unseen worker from as far away as the Philippines monitors and sometimes intervenes to complete an order if AI falters.”
“Perhaps the most visible and soon to be widely adopted are all kinds of kiosks for ordering food. The self-service machines have been around for more than a decade, but franchise owners such as Michaela Mendelsohn resisted the move for many years. ‘We just didn’t want to force our customers to use technology. We thought the personal contact was important,’ said Mendelsohn, who has six El Pollo Loco restaurants in Los Angeles and Ventura counties.”
“But when the industry’s basic pay rose to $20 an hour, she said, that amounted to $180,000 in additional labor costs a year per store. Within a month of the wage hike, Mendelsohn bought two standing kiosks for each of her six restaurants. That set her back $25,000 per store, for two screens, installation, software and other related costs.” READ MORE
THE ECONOMY
The banning of TikTok could have a real impact on the economy: “Roughly 7 million small-business owners and 1 million influencers rely on TikTok for their livelihoods, according to Rory Cutaia, who owns a livestream social media shopping platform that has partnered with TikTok Shop. Cutaia’s platform Market.Live helps small-business owners launch on TikTok, where they also often post videos about their products. TikTok Shop receives around 6,000 applications from small businesses each day, Cutaia said.”
“According to a study from TikTok and Oxford Economics, 890,000 businesses and 16 million people actively use TikTok in California. Forty percent of small to midsize businesses in the state said TikTok was crucial to their business.”
“Banning TikTok would send ripple effects through the economy because it’s become a primary platform for emerging companies, he said: ‘You’re probably talking about billions of dollars that would be removed from the economy.’”
“For small-business owners, TikTok Shop makes it ‘frictionless’ to sell and buy products on the app, Butler said. Users can shop while watching a relevant video, interact with others who have purchased the product and complete the purchase without leaving the app.” READ MORE
FINANCE
The SBA has finalized a rule that will make it easier for those with criminal records to get access to capital: “The so-called Ban the Box rule would lift restrictions on the agency's lending programs that barred interested borrowers who are on parole or probation from applying to SBA loan programs. The measure would also remove sections on SBA loan applications that asked about someone's criminal history, commonly grouped within a box—hence the name that the rule has caught. ‘For too long, small-business ownership has been out of reach for returning citizens,’ SBA administrator Isabel Guzman said in a statement. ‘Today, the SBA is taking a massive step forward to foster equity and remove unnecessary barriers that prevent countless individuals from starting and running a business.’ The final rule goes into effect on May 30.”
“Those who are currently incarcerated will not be eligible to tap into SBA loan programs. Another caveat is that a childcare small business would not be able to access the agency's programs if a key employee (such as a director or officer) is on parole or probation due to ‘an offense against children.’”
“The government says that the rule change could help millions of would-be entrepreneurs, including, by the SBA's count, about four million citizens who are either on parole or probation. Still, the rule change's projected impact on the economy is fairly modest, at less than $100 million per year.” READ MORE
MARKETING
One reason EVs aren’t selling better? Republicans won’t buy them: “There is one thing holding the nation back from the dream of an all-electric future: political polarization. Polling and sales data have consistently shown that while Democrats have been buying the new cars in droves, Republicans haven’t jumped onto the EV-buying train. ‘The Republican is like, They’re trying to ban gas cars — I’m not going to buy a Biden-mobile,’ said Mike Murphy, a former Republican strategist who runs the nonprofit EV Politics Project, which attempts to counter misinformation on electric cars and encourage conservatives to adopt the vehicles.”
“According to a Gallup poll conducted in March of this year, 61 percent of Democrats reported that they were ‘seriously considering’ or ‘might consider’ buying an EV in the future — compared to only 24 percent of Republicans. At the same time, 69 percent of Republicans said that they ‘would not buy’ an EV in future, compared to 27 percent of Democrats.”
“Actual sales show a similar trend. According to an analysis from researchers at the University of California, Berkeley, MIT and HEC Montréal, between 2012 and 2022 about half of all EVs sold went to the top 10 percent most Democratic counties in the United States. Around a third of all EVs sold went to the top 5 percent most Democratic counties.”
“Former president Donald Trump has railed against electric cars, calling support of them ‘electric car lunacy’ and the push for an EV future ‘very, very stupid.’ ‘I think it is getting more polarized,’ Murphy said. ‘Republicans are instinctively: ‘If Biden’s for it, we’re against.’” READ MORE
REGULATION
A new Florida law prohibits many Chinese citizens from buying homes: “More than three dozen states have enacted or are considering similar laws restricting land purchases by Chinese citizens and companies, arguing that such transactions are a growing threat to national security and that the federal government has failed to stop Chinese Communist Party influence in America. Florida’s law, which went into effect in July, is among the farthest reaching. In addition to barring Chinese entities from buying agricultural land, it effectively prohibits most Chinese individuals without a green card from purchasing residential property.”
“In more than a dozen interviews, Chinese residents in Florida voiced frustrations about being cut off from the ultimate American dream. Other residents of Chinese descent said they faced discrimination as they tried to buy a home. Some said they lived in fear over whether they may have inadvertently violated the law.”
“The law has also had an apparent chilling effect on the real estate industry, an important part of the state’s economy. Developers often rely on Chinese investors to help build projects in Florida, and the law appears to have barred such financing, prompting pushback from a prominent real estate lobbying group.”
“Yukey Hoo, a real estate agent in Winter Garden, a suburb of Orlando, estimated that she has turned away 10 potential clients — about one-fifth of her usual business — because she could not determine whether they were eligible to buy property.”
“The law technically applies to people who are ‘domiciled’ in China and don’t hold U.S. citizenship or permanent residency, and much of the confusion has centered on what ‘domicile’ means. Sellers and real estate agents can face up to one year of prison time for violating the law.” READ MORE
STARTUPS
These startups are trying to fix the broken market for childcare: “In the United States, where you can find nearly anything in seconds online, most childcare centers don’t even have a website. According to a survey conducted by Upfront, a New York-based software firm that builds childcare databases, only about 40 percent of providers have a website — and only a fraction of those are maintained or updated. ‘Imagine you were looking for an apartment and you were only able to see 40 percent of the inventory,’ said Dana Levin-Robinson, Upfront’s CEO. ‘And of the ones listed, only 20 percent had the price listed and half listed the number of bedrooms. Would you use that? No, you would not.’”
“Upfront and a handful of other companies are building on an effort that began in the wake of the pandemic, when state and municipal governments received federal stimulus funds for childcare. Now, the private sector is taking note of companies with systems designed to bring the search for child care into the digital age.”
“The software firm, BridgeCare, which built the Colorado county’s database, works in 14 states including Texas, Alabama, and Connecticut — and, in February, announced $10 million in venture capital funding. Upfront has deployed a statewide search in Maryland and will launch in two more states this summer. The Los Angeles-based firm Upwards works with private employers as well as municipalities and has raised more than $43 million to date.”
“While these databases can solve the problem of information, it remains unclear whether they can budge the elephant in the room for parents — namely, cost. In 2021, U.S. Treasury Secretary Janet L. Yellen called childcare ‘a textbook example of a broken market.’ According to the Treasury Department, an average family with at least one child under five must spend 13 percent of their income to pay for high-quality child care.”
“But what these databases can do is show parents that there are more options than they knew about. According to BridgeCare, which conducted a national survey in 2018, providers say slots remain open for an average of three to four months.” READ MORE
CLOSINGS
After 100 years in business the family-owned Sam Ash chain of music stores is closing its 42 locations: “The company traces its roots to another era in New York. Sam Ash settled in the city after immigrating from Austria in 1907, when he was 10, and worked in the garment industry. He also played the violin at weddings, dances, and bar mitzvahs, and was determined to open his own music shop. He and Ms. Ash pawned her engagement ring for $400 to make a down payment on what was to become the first Sam Ash store, according to the company’s website. She later got the ring back. Over the decades, Sam Ash employed many musicians, giving them a steady paycheck while they hustled for gigs.”
“Luis Infantas, a manager at the West 34th Street store who is a drummer in a post-punk band called Black Rose Burning, said customers could always count on ‘real, musician-caliber advice and equipment.’ ‘That’s the one thing that made us different from the competition,’ he said.”
“But sometimes, he said, customers would come to the store just to test out an instrument that they had researched online. Then they would go home and buy the instrument online. Mr. Infantas, who has worked for Sam Ash for 29 years, said that practice, known as ‘showrooming,’ underscored how hard it was for traditional stores to compete against online behemoths like Amazon.” READ MORE
THE 21 HATS PODCAST: DASHBOARD
The (Marketing) Road Not Taken: This week, Shawn Busse talks about his belief that, for all kinds of understandable reasons, business owners have been fixated on marketing tactics that amount to a losing battle of digital trench warfare. Over time, he says, those tactics have come to cost more and return less. But there are better alternatives, and Shawn takes us through some examples. Plus: Are there lessons for smaller businesses in Walmart’s decision to place a big bet on a premium line of food
You can subscribe to the 21 Hats Podcast wherever you get podcasts.
Thanks for reading, everyone. — Loren