Is Now the Time to Start a Business?

Even as omicron and inflation surge, business starts and startup funding set records.

Good morning!

Here are today’s highlights:

• Inflation hits a 40-year high.

• The IRS begins tax season with a huge backlog.

• A Boston startup offers software designed specifically to manage hybrid offices.

• The FDA decides to deregulate French dressing.

THE COVID ECONOMY

In December, inflation hit an annualized rate of 7 percent, its highest level in 40 years: “The fresh data released on Wednesday showed the costs of used cars and food both increasing quickly, and provided further evidence that price gains are broadening beyond just a few pandemic-disrupted categories. Rents continue to pick up at a solid pace, and restaurant meals are more expensive, possibly a sign that recent wage increases are beginning to contribute to higher prices as employers look to cover higher labor costs.”

• “Global supply chains also continue to experience disruptions that are leading to shortages of parts and products and pushing costs higher across a broad array of consumer goods.”

• “The price of food grew 6.3 percent and apparel rose 5.8 percent in the year to December. Used cars and trucks — a big factor in price gains since last spring, along with new vehicles — surged 37.3 percent.”

• “Jerome H. Powell, the Fed chair, emphasized on Tuesday that the central bank was shifting into inflation-fighting mode after nearly two years of trying to prop up the pandemic-stricken economy by keeping interest rates near zero.” READ MORE

Grocery shelves are emptying again: “Social media is rife with images of empty supermarket aisles and signs explaining the lack of available food and other items. Stores such as Aldi have apologized to customers for the shortages. The reasons for the dwindling stock are numerous, according to food industry analysts, and include some issues that impacted retailers at the beginning of the pandemic as well as challenges that have cropped up more recently. ‘We're really seeing the perfect storm,’ Phil Lempert, editor of the website SupermarketGuru.com, told NPR.”

• “A recent survey conducted by the National Grocers Association found that many of its member retail and wholesale grocers reported operating their stores with 50 percent of their normal workforce.”

• “It's more than grocery stores, though. There are workers all across the food industry supply chain who are getting sick and staying home, impacting food production, manufacturing, shipping and distribution.” READ MORE

TAXES

The IRS will begin tax season with a backlog of at least 10 million unprocessed returns: “The pile of returns remaining are from the ‘most challenging year taxpayers and tax professionals have ever experienced,’ the advocate, Erin M. Collins, wrote in her annual report. Although the backlog is not too different from last season’s, it is a far higher number than the unprocessed returns the IRS typically faced before the pandemic.”

• “One big reason for the pileup, according to the report, is that the federal government charged the IRS with administering various stimulus payments and other programs during the pandemic.”

• “Since 2010, the IRS’s staffing is down 17 percent, according to the report. Its workload, measured by the number of individual returns, is up from 142 million in 2010 to 169 million last year — an increase of 19 percent.” READ MORE

FINANCE

Startups took in $621 billion in funding in 2021, shattering records: “Startups raised more venture capital funding than ever last year and more cities around the world started to look like tech hubs — although Silicon Valley remains firmly in the lead. In 2021, investors more than doubled the amount of cash they handed out to startups, hitting $621 billion globally and shattering the previous year’s record, according to new data from research firm CB Insights.”

• “The United States accounted for about half of the world’s funding total, with startups in the country raising about $311 billion, according to the report.”

• “The Silicon Valley region and New York retained their top spots for both the most money raised and the most deals completed.”

• “For the first time since CB Insights started tracking the data, there were more funding rounds in Asia than any other region, with 12,485 deals—though the United States was still the leader in terms of the dollar value.” READ MORE

STARTUPS

The number of  businesses started in 2021 soared to record highs: “A whopping 5.4 million new business applications were filed in 2021, surpassing the record set in 2020 of 4.4 million. While it's hard to say how many pandemic-era business applications will turn into real money-making ventures, the surge in entrepreneurship appears to be good news for the economy. Traditionally, startups have driven economic recovery and innovation.”

• “​​For comparison's sake, there was no such surge in new business applications following the Great Recession.”

• “In 2019, the year before the coronavirus disrupted life as we knew it, there were 3.5 million new business applications.” READ MORE

A London-based payment processor called Checkout.com has raised $1 billion and been valued at $40 billion: “Checkout.com moves money between shoppers and online merchants, a business that boomed during the Covid-19 pandemic. The company’s payment volume tripled in both 2020 and 2021, said Chief Executive Officer Guillaume Pousaz, with clients such as Netflix and Klarna Bank benefiting from higher demand for their services. In recent months, though, online sales have slowed with the easing of pandemic restrictions and the return to physical stores.”

• “Checkout.com plans to use much of the new capital to fuel an expansion into the U.S.” READ MORE

HUMAN RESOURCES

A Boston startup, Robin, has software designed to make hybrid offices work better: “The software lets workers indicate when they’ll be in the office and even shows where they’re sitting on a map, so coworkers can coordinate meeting in person. Other parts of the app help manage meeting spaces and office capacity, a particularly useful feature during the current Omicron wave. Overall, the goal is to make a hybrid workplace, with people working sometimes in the office and sometimes remotely, more efficient.”

• “[Robin] employs 130 people and last raised funding, $20 million of venture capital, in 2019. Its customers range from carmaker Toyota and exercise equipment maker Peloton to Boston cybersecurity startup Snyk.”

• “‘We see this being a category just the same way remote-working tools Zoom and Slack are.’” READ MORE

SUSTAINABILITY

Verloop founder Ella Lim turns deadstock yarn into a museum shop staple: “Knit gloves, scarfs and balaclavas in colorful, graphic patterns made by Verloop are sold at museum shops across the U.S., from New York City’s MoMA to de Young in San Francisco. The modern knit creations are made in part with surplus yarns from a manufacturing factory just outside Manila, the capital of the Philippines. Ten years ago, the extra yarn from knitwear orders was routinely tossed into this factory storage room, forever forgotten or thrown out. When Ella Lim discovered a cache of deadstock yarn in the factory, which is run by her mother, she transformed them into quirky, fun knitwear pieces, which was the beginning of Verloop.”

• “One of Verloop’s big hits has been the ‘Pair and Spare’ gloves, a set of three slightly different patterned gloves in the same colorway that sell at acclaimed design-centric retailers, along with mainstream chains like Nordstom, in North America.”

• “Verloop’s pieces, which also include vibrant hats, wraps, bags and homewares–even funky ribbed bottle and planter sleeves–sell from $28 to $160.”

• “Today, incorporating leftover yarn into pieces is a Verloop selling point. ... The use of deadstock materials, repurposing, ‘is front and center in how we present the company.’”  READ MORE

REGULATION

The FDA has decided to deregulate French dressing: “Among the surprising elements of the news is the fact that the federal government bothered to define French dressing at all—and that it stood for decades. ... When the FDA established its standard 72 years ago, French dressing was one of just three dressings recognized by the agency. The other two were mayonnaise and ‘salad dressing.’”

• “According to the original 1950 standard, a French dressing should include vegetable oil, and a vinegar and/or lemon or lime juice, and could be seasoned with ingredients such as salt, sugar, tomato paste or puree, and spices such as mustard or paprika.”

• “In 2022, the French dressing perhaps best known to Americans has a more creamy texture, sweet flavor and red or orange composition. There’s not much that’s French about it.” READ MORE

THE 21 HATS PODCAST

Maybe it’s not the marketing: This week, we introduce a new member of the 21 Hats Podcast team, Shawn Busse, who tells Jay Goltz and Laura Zander about an intriguing challenge he faces. Twenty-two years ago, Shawn co-founded a marketing firm called Kinesis, but now he’s trying to convince clients that it takes more than just marketing. Sometimes, it’s not enough just to drive more leads. Sometimes, you have to step back and take a deeper look at your business, which not every client is ready to do. In fact, it took Shawn 10 years (and the Great Recession) to do it with his own business.

• You can subscribe to The 21 Hats Podcast wherever you get podcasts.

If you see a story that business owners should know about, hit reply and send me the link. If you got something out of this email, you can click the heart symbol, you can click the comment icon below, and you can share it with a friend. Thanks for reading, everyone. — Loren