Is the Startup Party Over?

The last two years have seen a resurgence in American entrepreneurship, but there are reasons to think the fun may not last.

Good morning! .

Here are today’s highlights:

  • Eric Ries says there’s a thin line between a startup and a Ponzi scheme.

  • It’s not going to be easy to find help for the holidays.

  • Tesla managed to defy the supply-chain crisis.

THE 21 HATS DASHBOARD

 Is the Startup Party Over? Gene Marks and I are back today with another 21 Hats Dashboard podcast where we highlight the news stories business owners should be thinking about this week. Today, Gene explains why he thinks inflation and rising interest rates are going to end the recent surge in startups. Plus: Why raising prices can be a challenge for business owners—even when everyone is doing it. And what are we to make of a third straight month of falling consumer confidence? Are other metrics flashing warning signs as well?

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STARTUPS

Eric Ries, author of The Lean Startup, talks about whether it’s still okay to fake it until you make it in light of the Theranos trial and the Ozy Media collapse: “‘It’s a thin line between a start-up and a Ponzi scheme,’ Mr. Ries said. ‘Generally speaking, you are asking people to invest in something that doesn’t yet exist on the basis that you will bring it into existence.’”

  • “You see how people get confused really easily, because it is important to be able to do a landing page test where you ask people to pre-order a product that doesn’t exist.”

  • “But honesty is a prerequisite for those programs to work. You have to come clean about what you’re doing and why. Otherwise, your customers might come to rely on something you said or a promise that you can’t deliver that would harm them.”

  • “And that’s not only morally wrong, it’s bad business to build that reputation.” READ MORE

HUMAN RESOURCES

The legalization of marijuana around the country is bringing weed into the workplace: “Many of the 55 employees at Vangst, a recruiting firm for cannabis companies based in Denver, consume marijuana during a biweekly, virtual all-hands meeting that usually happens around happy-hour time, says Karson Humiston, its 28-year-old founder. ‘Some people are drinking an alcoholic beverage, and others are smoking a joint,’ she says of their online team hangouts.”

  • “When Amazon said in June that it would stop screening most job candidates for marijuana, it predicted the pool of qualified applicants would rise by 400 percent.”

  • “Dae Lim, 28, who runs cannabis-inspired clothing label Sundae School, says he makes daily judgment calls about when it’s appropriate to get high, adding that he is typically sober most of the workday.” READ MORE

The demand for holiday labor is surging: “Job postings seeking seasonal help urgently have soared in the U.S., while the number of people looking for temporary work is faltering. September data from jobs website Indeed underscore the major hurdles faced by employers who need extra help in this year’s labor crunch. More than 10 percent of postings for holiday jobs indicated hiring was  urgent in the week ended Sept. 22, compared with 1 percent a year earlier, according to Indeed. Many positions will probably go unfilled, because the number of workers seeking such jobs is down 1.5 percent.” READ MORE

THE COVID ECONOMY

The signs of inflation are getting real: “While many pandemic-driven price pressures are easing, broader sources of higher inflation are replacing them. That is the message from a slew of alternative inflation measures that strip away price changes due to idiosyncratic swings in supply and demand, and home in on longer-lasting pressures. These alternative indexes are signaling ‘inflation is not as extreme as what the headline or traditional core shows right now, but it is picking up,’ said Sarah House, director and senior economist at Wells Fargo.”

  • “‘All of these measures have moved from signaling price stability to signaling sharp accelerations in underlying inflation,’ said Brent Meyer, an economist at the Federal Reserve Bank of Atlanta.”

  • “But a key question is whether prices will continue to rise more persistently once these temporary disruptions end.” READ MORE

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LOGISTICS

Supply-chain issues did not keep Tesla from setting a record for deliveries: “The Silicon Valley electric-vehicle maker delivered 241,300 vehicles to customers in the three months ending in September, it said Saturday, up from 139,593 vehicles during the same period last year. Analysts surveyed by FactSet forecast Tesla would deliver roughly 227,000 vehicles in the quarter. The result positions Tesla to easily achieve its full-year goal of increasing deliveries by more than 50 percent over last year’s total of nearly half a million vehicles. The company has put a total of roughly 627,000 vehicles in customer hands through the first nine months of the year.”

  • “The continuing semiconductor shortage is likely to cost the global auto industry $210 billion in lost revenues this year, consulting firm AlixPartners LLP said.“

  • “Tesla Chief Executive Elon Musk nodded to those headwinds in a note to employees last month, in which he said the company worked around shortages by building cars with missing parts that needed to be added later, according to a person familiar with the matter.” READ MORE

Manufacturers are channeling scarce resources into higher margin products: “As the global supply-chain crisis snarls production and bloats manufacturing and shipping costs, companies that make products from lawn mowers to barbecue grills are prioritizing higher-priced models, in some cases making cheaper alternatives harder or impossible to find, company executives, retailers and analysts say. Some are pushing upscale products in an effort to make up for added labor, shipping and manufacturing costs. Whirlpool, maker of washing machines, KitchenAid mixers, and other home appliances, said in July it would shift toward higher-price products as part of a plan to help cover rising costs.”

  • “The shift to upscale products comes in addition to other steps companies are taking to recoup costs and get as many products as possible to consumers.”

  • “Across industries, manufacturers of products from toilet paper to televisions are raising prices, winnowing product assortment and imposing purchase limits on retailers.” 

  • “Televisions are among items for which cheaper models are becoming scarcer, said Mike Abt, co-president of Chicago appliance seller Abt Electronics. He said the price he pays for appliances is rising and he expects that to continue next year.”

  • “For the first time he can remember, the price of televisions has actually increased—they typically get cheaper every year.” READ MORE

OFFICE SPACE

The return to the office is looking very different around the world: “London and New York have, after a summer lull, regained some of their pre-pandemic bounce. Broadway has reopened, and the yards and alleyways of the Square Mile are once again thronged with financial workers. Neither city may be as busy as it was before the pandemic—but a recovery is in sight. In Asia, the picture couldn’t be more different. Singapore and Sydney have had to introduce fresh restrictions as the number of coronavirus cases spikes. This international divergence is reflected in the mobility data compiled by Google, which tracks the locations of its users.”

  • “What accounts for the difference? Vaccination rates and countries’ varying risk appetites.”

  • “After inoculating large swathes of their populations, London, New York and, to a lesser extent, Frankfurt are reopening even as the virus lingers.”

  • “But cities such as Singapore and Sydney that locked down hard and early—and so got people accustomed to very low levels of infection and risk—have found loosening restrictions tougher as they face further outbreaks.” READ MORE

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THE 21 HATS PODCAST

I’m a Freak About the Numbers: In episode 78, Jay Goltz, Diana Lee, and Dana White talk about how they manage their financials—what reports they get, what KPIs they track, and how they make sure the sales team isn’t going rogue. We also learn of a new wrinkle in Dana’s growth plan. She’s concluded that—along with rolling out franchises and installing hair salons on military bases from Texas to Germany to Okinawa—she also needs to create her own software platform to manage her salons. “Cha-ching,” responds Jay. Plus: Diana explains how the new digital marketing privacy rules hamstring small businesses—and what they can do about it.

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