Sell Equity? Or Bet the House?
Sell Equity? Or Bet the House?
When building a business, Ami Kassar writes, entrepreneurs often face the difficult decision of whether to give up some control or to use their house as collateral.
Good Morning!
Here are today’s highlights:
There may be untapped marketing opportunities for your business on Reddit.
One benefit of remote work is often overlooked.
Some communities have been blocking the opening of dollar stores.
Ford wants its cars to be able to repossess themselves.
FINANCE
In his 21 Hats column, Ami Kassar discusses raising capital: “It is possible to get an SBA loan for a projection-based startup. To do this, you need to prepare a carefully thought-out business plan that shows a reasonably clear path to being cash flow positive. And then, you have to prepare to kiss many frogs before you find your lender. Unless you are quite fortunate, you can expect this to be a six- to nine-month process.”
“If they pursue home equity loans rather than an SBA loan, they could be funded in as little as 30 to 45 days.”
“If you launch a consumer product, GoFundMe business fundraisers can be very successful.”
What would you do? READ MORE
MARKETING
There are untapped marketing opportunities for small businesses on Reddit: “Businesses can start or participate in conversations, target niche groups known as subreddits, share their stories via its Ask Me Anything, or AMA, page, or run ads on the platform. Reddit says it can help companies drive brand awareness, traffic, conversions, and app installations. The site has more than 57 million daily active users and 13 billion total posts and comments. While it takes time and dedication to market on Reddit, companies can get started with a small budget.”
“Subreddits are communities centered around specific topics, such as the Death Positive subreddit that DigitalWill.com engages with, which focuses on topics like death-related industries and how different cultures handle death. ‘There's a subreddit for everything,’ Brooke Cullison, the director of ecommerce at Liquid I.V., an electrolyte-drink mix, told Insider.”
“The productivity app Todoist launched its own subreddit about a decade ago. The community, which has about 50,000 members, is devoted to sharing tips and tricks for using Todoist, as well as news, updates, and interesting ideas.”
“The subreddit enables the company to engage directly with its users and ask for their feedback. But running a subreddit takes time, dedication, and resources, Loury said: ‘We can't just post something and walk away.’”
“The platform's paid marketing and advertising features can also be inexpensive; the minimum cost to advertise on Reddit is $5 a day. DigitalWill.com doesn't run paid ads, but [CMO Joe] Karasin said the return on investment for the time and effort that the company put into engaging on Reddit was the best among all of its marketing efforts.” READ MORE
HUMAN RESOURCES
Remote work has expanded the options for businesses looking to hire: “The employment rate for people with disabilities hit a record high in 2022, and economists say the growing availability of remote work may have been a factor. The Bureau of Labor Statistics reported 21.3 percent of people with disabilities were employed. That's up from 19.1 percent in 2021 and represents the highest rate since BLS started tracking the metric in 2008. Economists say multiple factors fueled the record rate, including a historically tight labor market that has convinced many employers to broaden their traditional talent pools — something workforce development advocates have been pushing businesses to do for years. But the availability of remote work created new avenues for linking individuals with disabilities to roles.”
“The unemployment rate for people with disabilities stood at 7.6 percent in 2022, compared to 3.5 percent for those without disabilities — although both declined during the year.”
“In total, people with disabilities account for about 12 percent of the civilian population, according to the BLS.”
“‘The ability to work from home has unlocked accessible job opportunities for workers who may have previously been sidelined. Remote positions offer new talent options for employers looking to hire,’ said Lightcast Senior Economist Layla O’Kane.” READ MORE
ENERGY
Gene Marks says that many businesses don’t realize they can choose where to buy energy: “A growing number of my clients have been working with independent energy consultants (or brokers) to help them figure out — and then purchase — the most efficient and cost-effective solutions for powering their companies. ‘In Pennsylvania, New Jersey, and Delaware, the energy markets are deregulated,’ said Kristin DeBias, co-founder and president of Energetek, a Philadelphia-based energy consulting and brokerage firm. ‘That means any business can shop with many choices to choose.’”
“DeBias’ company, like other energy consultants and brokers, evaluates and then builds a detailed profile of her clients’ utilities usage and then bids out their needs to various energy suppliers. Depending on the responses, she can then negotiate the best deal and advise her clients on when and how to buy their energy based on current market conditions.”
“Currently, DeBias is advising her clients to purchase very short-term contracts. ‘Due to the changing and very volatile markets, we’re recommending committing to a 6–12-month contract with an energy provider and certainly no longer than 24 months.”
“‘We’re looking for providers that might have deals or might have bought energy in the past in bulk and can offer it to customers at a more favorable price. They’re out there and businesses can save.” READ MORE
RETAIL
Retailers are moving to the suburbs: “At the end of 2021, [Abercrombie & Fitch] opened a new boutique-style shop in the Lakeview neighborhood of Chicago, where a large customer base was making online purchases. It’s part of a pattern among U.S. retailers that are abandoning malls and large-format stores in city centers in favor of neighborhood locations that aim to serve the work-from-home generation. And while retail presence is shrinking in many big cities, apparel retailers’ brick-and-mortar locations are growing overall. They’re just moving outward, with smaller footprints in residential neighborhoods.”
“At Abercrombie, executives used e-commerce transactions and other location data to map out where shoppers are most concentrated, and are basing their store strategy on changing behaviors.”
“The purpose of the new store in Lakeview is to make the return and exchange process more convenient for the brand's most active consumers. Once inside, the location might spur customers to make a purchase, which wouldn't happen if they dropped a package at a UPS drop box.” READ MORE
Not every community wants a dollar store: “Morgan, Minn., a city of about 800 people, has two restaurants, several churches, a grain elevator and one small grocery store that sells rib-eye steaks that, according to the mayor, ‘are the best around.’ The mayor, Jerry Huiras, 76, is protective of the lone grocery, a family business that dates back many generations and operates in a downtown dotted with empty storefronts. So when he got wind in late 2020 that Dollar General was planning to open a store near the town limits, and that this fast-growing national discount chain was known for undercutting local grocers with its low prices, Mr. Huiras vowed to prevent that outcome in Morgan.”
“Since 2019, at least 75 communities have voted down proposed dollar stores, while roughly 50 have enacted moratoriums or other broad limits on dollar store development, according to a new report by the Institute for Local Self-Reliance, an organization that is critical of corporate retailers and their impact on communities.”
“More than one-third of all stores that opened in the United States in 2021 and 2022 were dollar stores. Dollar General alone opened 2,060 locations during those years, far more than any other retailer, according to Coresight Research, and the company now operates 19,000, more than twice as many as Walmart and Target combined.”
“Walmart’s growth set the stage for the dollar stores’ business model. Walmart hurt small retailers that couldn’t compete with its low prices and huge scale, and the company was criticized for hollowing out local retail corridors.”
“But there was a limit to Walmart’s physical growth. Its large-format stores, designed essentially as regional shopping hubs, are not suited to every community, whereas dollar stores have smaller footprints that require less land and fewer infrastructure improvements.” READ MORE
INSURANCE
Here’s a basic primer on buying small business insurance: “How much business insurance costs is based on the level of risk your business presents. For example, a construction company or restaurant will have many more liability risks than a retail store or office. Businesses that use expensive equipment will have higher commercial property costs, and businesses that own and operate vehicles will have additional commercial auto costs. Your business income will also impact the cost of business insurance and whether you qualify for a small business owner’s policy.”
“A business owner’s policy is a package of small business insurance coverages that may vary from one insurer to the next but generally includes commercial property insurance, general liability insurance, and business interruption coverage. A BOP will not cover professional liability insurance; you’ll have to buy that coverage separately.”
“The cost of liability insurance for a small business varies depending on the type of work your business performs, where your business operates, your past claims history, and the limits you choose for your policy. Some small, low-risk businesses may pay as little as $200 per year for general liability insurance and $300 per year for professional liability insurance.”
“Business-interruption insurance helps pay for ongoing expenses and debts as well as replace lost business income after a covered event, like a windstorm.” READ MORE
THE NEW REPO MAN
Ford has applied for a patent for a process that would enable its cars to repossess themselves: “It describes several ways to make the life of somebody who has missed several car payments harder. It explicitly says the system, which could be installed on any future vehicle in the automaker's lineup with a data connection, would be capable of ‘[disabling] a functionality of one or more components of the vehicle.’ Everything from the engine to the air conditioning. For vehicles with autonomous or semi-autonomous driving capability, the system could ‘move the vehicle from a first spot to a second spot that is more convenient for a tow truck to tow the vehicle... move the vehicle from the premises of the owner to a location such as, for example, the premises of the repossession agency,’ or, if the lending institution considers the ‘financial viability of executing a repossession procedure’ to be unjustifiable, the vehicle could drive itself to the junkyard.”
“The patent application states that ‘the repossession system computer may disable the door lock mechanism, thereby placing the vehicle in a lockout condition and preventing a person from entering a cabin of the vehicle.’”
“There are several caveats to go with this, such as locking out the owner only on weekends or allowing for vehicle use in emergency situations. Indeed, the patent explicitly notes that if somebody is suffering from something like a heart attack—it uses the heart attack situation several times in the document—then the car could be unlocked.”
“It says the vehicle's onboard camera could be used alongside a ‘neural network’ to determine if the emergency situation is legitimate.” READ MORE
THE 21 HATS PODCAST
What It Means to Break $1 Million in Revenue: This week, in episode 144, Liz Picarazzi and Sarah Segal talk about their attitudes toward growth, including how they set goals, the tension between revenue and profit, deciding when growth requires additional bodies, choosing between contractors and employees, and how they would use the money if someone were to give them a million dollars to invest in their business. Plus: What will it take for them to consider themselves successful?
You can subscribe to the 21 Hats Podcast wherever you get podcasts.
Thanks for reading, everyone. — Loren