Is This the Right Time to Start a Bank?
A lot of entrepreneurs seem to think so, and most of them are doing it to serve smaller businesses.
Here are today’s highlights:
Do you know how to handle a customer who takes your dispute to social media?
Applying for an SBA loan is a challenging process. Ami Kassar says it should be.
Ecommerce companies are coming up with new strategies to discourage returns.
QR-code menus are not the solution restaurants were hoping they would be.
We’ve all know TikTok can make a business; it can also break them: “A baker and a tattoo artist recently garnered TikTok virality other small business owners could only dream of. The only problem? The exposure wasn’t positive. Kylie Allen, owner of the West Virginia-based bakery Kylie’s Kakes, posted a video last month about a dispute with a dissatisfied customer over an $84 rainbow-sprinkle cake, which spiraled into a controversy users deemed ‘cakegate.’ Weeks later, a TikTok user by the name of Courtney Monteith’s video about a Canada-based tattoo artist charging high design fees turned into ‘tattoogate.’ Videos about these incidents have racked up millions of views on TikTok, with most people showing support for the customer.”
“‘As a business, you need to have a policy on how you manage unhappy and dissatisfied customers,’ said Angeli Gianchandani, marketing professor at the University of New Haven. ‘And, when you identify that and you make good with the consumer, it won’t spiral.’”
“Sometimes, the business owners inadvertently shine the spotlight on their wrongdoings themselves. ‘You might just let it play out, unfortunate as that might be,’ said Josh Rosenberg, CEO of Day One Agency, which focuses on digital marketing, public relations and social media.”
“Rosenberg said, ‘in business, you should always take the high road.’ ‘If you are running a small business, you do need to really build those true authentic relationships with your customers and talking negatively about them probably isn’t the best approach,’ he said.”
“Ultimately, the best thing business owners can do is focus on ‘creating a product worth advocating for,’ Rosenberg said.” READ MORE
Perhaps surprisingly, entrepreneurs are choosing this moment to start new banks: “In the aftermath of the collapse of SVB, Signature Bank, and First Republic, many have been ready to pronounce the death of regional and community banks. The thinking goes that niche financial institutions can't compete in the current environment and that too-big-to-fail institutions like J.P. Morgan stand to dominate more and more of the industry. But all over the country groups of entrepreneurs are doubling down on starting new banks from scratch, known as de novo banks. These quixotic financiers are wagering that reports of small banks' demise have been greatly exaggerated.”
“‘The outside world might feel like the sky's falling,’ said [Ed] Gutierrez, ‘but we feel like we're well prepared.’ He and [Lyla] London ended up submitting their banking applications just a few weeks after the collapse of SVB and they're currently waiting on approvals, which they expect to come in the next few months.”
“[Gutierrez] got the idea about five years ago when he was trying to secure a small business loan in Houston. Despite having a proven track record of starting successful businesses, Gutierrez said he couldn't find a bank in Houston that would lend to him. He was forced to contract with a loan broker in Colorado who sourced financing from a bank in Chicago.”
“He estimates that of the approximately $360 billion in deposits in Harris County, where Houston is located, nearly half are banked with J.P Morgan Chase, which he argues is not well equipped to serve small businesses. ‘Their interest is not lending, that's not their core function. Their core function is just to protect the gold that they're sitting on.’”
“In Columbus, Ohio former banker Ilaria Rawlins is awaiting approval to start Fortuna Bank, which would become the state's first women-owned bank. Rawlins points out that of the more than 4,100 banks in the U.S., only 13 are owned by women. Fortuna will work to serve female entrepreneurs who receive only about 4 percent of small business loans despite making up 30 percent of small business owners.” READ MORE
Ami Kassar says applying for an SBA loan should be hard, but Congress doesn’t seem to understand that: “Congress needs to recognize that there’s already a massive industry that offers financing to any business owner enticed by quick cash and a simple application process. For example, these lenders are only too happy to send businesses $50,000 with the understanding that the borrower will pay back $60,000. This encourages many borrowers to believe that loan will cost them $10,000, or 20 percent, which may seem like a reasonable alternative to going through a lengthy application process. But the annual percentage rate, or APR, in this example is not 20 percent. In fact, the payments will be taken out of the borrower’s account daily, usually over a few months. If you calculate the offer on an APR basis, the actual rate is often greater than 60 percent, which is why the lenders like to call them advances instead of loans and why they don’t specify an APR in their offers.”
“So why do entrepreneurs take these loans? Because they’re easy, they’re fast, and they’re misleading. If the lenders were required to disclose the actual APR smack in the middle of their promotions, far more borrowers would pause.”
“So should the SBA compete with speed and convenience? Is this what we want for the SBA program? In today’s world, SBA borrowers write business plans, build projections, and make business cases for their needs. They have to have their books in order.”
“Ultimately, it shouldn’t be that easy to get a business loan. It should take some work and a thoughtful business plan.” READ MORE
The push for pay transparency is having the intended effect—but with a catch: “Data from Indeed’s HiringLab found about 45 percent of job postings in the United States included some salary information in April, more than double the 20 percent prior to the pandemic. But among those, only about 22 percent stated an exact salary or wage — the rest publish a salary range. Overall, the average spread between the low and high end of a pay range is about 17 percent. For example, a salary range starting at $50,000 would have, on average, a top range of $58,500. In areas with dedicated pay transparency laws, the salary range is widening dramatically.”
“Seven of the 10 areas with the largest increase in advertised salary range spreads were in California or Washington — states where pay transparency requirements went into force at the beginning of 2023, according to Indeed.”
“The report noted that the salary range is narrowing in areas where the labor market is the hottest, such as the South. Over the last year, unemployment rates rose in half of the metro areas with widening salary ranges.”
“Laws aren't the only factor driving increased salary details in job listings. About 71 percent of workers surveyed said they would be less likely to apply for a job if the listing did not include a salary range, according to a recent survey by Skynova.” READ MORE
Online retailers continue to look for ways to discourage returns: “Amazon gives a heads-up to shoppers about items that have high return rates. Online retailer Dress the Population offers discounts to people who agree not to return their purchases. Retailers with large numbers of physical stores such as Zara and H&M are also making adjustments like charging shoppers for sending returns by mail. Return rates surged during the Covid-19 pandemic, as more consumers shifted to online shopping—and frequently bought multiple sizes of the same item because they were unsure of the fit. Return rates in 2022 were roughly 14 percent higher than in 2019, according to Narvar, a returns-management company.”
“On average, the cost to process $100 of returned merchandise is about $26.50, according to Narvar. Cutting the number of returns in half could increase profits by about 25 percent, said Amit Sharma, Narvar’s chief executive.”
“‘Customers say free returns is the most important thing, but if it’s not there they still shop,’ said Katie Mullen, chief customer officer at JCPenney, which charges $8 for returns by mail. ‘There is a big difference between what they say in surveys and what they do in practice.’”
“A small number of customers tend to account for the majority of returns, said Brian Walker, chief strategy officer at Bloomreach, which provides technology that personalizes the online experience. At one apparel retailer that Bloomreach works with, 8 percent of shoppers made 70 percent of the returns, he said. Bloomreach tries to identify heavy returners so retailers don’t inadvertently reward them with deals and discounts.”
“‘Marketers double down on that group because they tend to order more, but they are among the least profitable customers,’ he said.” READ MORE
Apparently, QR codes are not the answer for restaurants: “Heavenly Buffaloes, a chain of restaurants with locations in three North Carolina college towns, would seem tailor-made for QR-code menus. Its customers tend to be young and tech-savvy. Most come in hungry, many tipsy. And the menu isn’t exactly complicated. ‘It’s chicken wings and beer,’ said Bo Sayre, the company’s district manager. ‘That’s what we do. Not a lot of people are asking, What beer pairs well with this chicken wing?’ Like other restaurant owners and managers around the country, Mr. Sayre put digitalized menus on all his tables in the early, don’t-touch-anything stage of the pandemic, when contactless service was considered essential. But over time, fewer and fewer diners have paid them any notice.”
“MustHaveMenus, a menu management and printing platform with about 7,000 customers across the United States, has seen a falling off in the use of the QR codes it provides to restaurants, said Mark Plumlee, the senior content manager. From April 1 to May 16 of this year, the total number of scans has dropped by about 27 percent compared with the same period in 2021.”
“One reason is etiquette. Everyone knows it’s rude to take a phone out at a table, but that’s what a digital menu demands. And having to make a special request for a paper menu is awkward. No one wants to be That Guy.”
“Another drawback to the coded menu is its feel. As the pandemic ebbs, restaurants are trying to coax people to eat out, and the seduction of a dining room is part of the get — dusky candlelight and uninterrupted, eye-to-eye conversation. A QR code can kill the mood: phones up, blue lights on, conviviality off.” READ MORE
Startup CEOs are taking pay cuts to conserve cash: “So far this year, the average annual salary for CEOs at U.S. startups has fallen to $142,000, down from an average of $150,000 in 2022, and the lowest since 2020, according to Kruze Consulting, an accounting firm for venture-backed companies. The salary figures are based on an analysis of financial data from more than 400 of the firm’s private venture-backed startup clients, Kruze said. Most chief executives at early-stage startups—who often are also a founder or co-founder of the business—set their own salaries based on prevailing market rates. As startups mature, salaries for CEOs and other executives are more likely to be decided by the company’s corporate board.”
“‘When these companies start getting low on funding, founders will do whatever they can to extend runway,’ said Healy Jones, Kruze’s vice president of financial strategy. ‘But some founders are clearly in a tougher spot than others.’”
“Jones said this year’s average salary is being weighed down by a number of CEOs who are drawing no salary at all. At the same time, he said, a handful of outliers have raised their salaries, as indicated by a rising median salary. That suggests a smaller pool of healthy businesses are getting the bulk of available capital, limited as it is, while others are struggling, Jones said.” READ MORE
A crowd-funded startup is making an edible coffee cup: “A trash can overflowing with disposable drink cups is an all-too-familiar sight outside any high-traffic café or fast-food joint. It was during a lunch-time walk in Melbourne that colleagues Aniyo Rahebi and Catherine Hutchins passed by several such eyesores and decided to combat the piles of waste. A few months later they arrived at an idea: a to-go cup that can be eaten. After hundreds of hours in the kitchen refining their concept, the duo took it to market. Their startup Good-Edi now offers an edible, biodegradable, plastic-free alternative to the standard polyethylene-lined paper cups used for coffee that largely end up in landfills or gets incinerated.”
“After about 250 recipe adjustments, the founders settled on a blend of rye flour, wheat bran, oat bran, sugar, salt, coconut oil and water. They say their container stays crispy holding a hot cup of joe for about 40 minutes and won’t leak a cold beverage for about eight hours.”
“When a Bloomberg Businessweek reporter recently tried a Good-Edi cup, it tasted like an unsweetened wheat biscuit, making her wonder, ‘Will coffee drinkers be keen to gobble up the company’s innovation, if it doesn’t feel like a treat?’”
“The startup’s sales pitch is primarily about sustainability, and Good-Edi says its offering is better for the environment than a plastic-lined paper cup even if it isn’t eaten.” READ MORE
THE 21 HATS PODCAST
Is PR Worth the Effort? This week, William Vanderbloemen says good public relations is absolutely worth the time and money. Paul Downs, on the other hand, says PR hasn’t worked for him. At this point, he says, there are all kinds of ways he’d rather spend his time and money. Meanwhile, Sarah Segal, who owns a PR firm, offers some tips on how to approach and how to employ a firm effectively. Along the way, we discuss what’s expensive when it comes to PR and whether owners can just do it themselves. Plus: Paul explains how he dug himself out of a sales hole by not doing anything differently. And we find out how the owners feel about all of the new ways they’re being asked to leave tips. Spoiler alert: they’re not loving it.
You can subscribe to the 21 Hats Podcast wherever you get podcasts.
Thanks for reading, everyone. — Loren