Tech Is Bracing for a Bloodbath
Amid concerns about interest rates, supply chains, and inflation, the layoffs have already begun.
Good morning!
Here are today’s highlights:
Dashboard is back!
Maybe business travel isn’t over.
Unions are looking to organize smaller businesses.
Consumers would rather pay more for a product than pay for shipping.
THE 21 HATS PODCAST
Dashboard: Gene Marks Went Remote Years Ago. He Hates It: This week, Loren Feldman and Gene Marks resume their weekly conversations about the most important stories affecting business owners, starting with why Gene was ahead of his time in taking his business remote and why he thinks it has left his company dysfunctional. Plus: What should owners take from the latest strong jobs report? And how will businesses be affected if the Supreme Court does indeed overturn Roe v. Wade?
You can find Dashboard in your 21 Hats Podcast feed.
BUSINESS TRAVEL
The doomsayers may have been wrong about business travel: “Airlines’ early fears that video-conference applications such as Zoom, Teams, and Skype might keep lucrative business travelers home permanently are subsiding as governments ease border restrictions and executives rediscover the commercial value of human contact. Data from four top companies that manage corporate travel show that two years after Covid-19 pushed aviation to the brink, premium-class cabins are filling up again. The pessimists ‘were wrong,’ says Andrew Crawley, chief commercial officer for American Express Global Business Travel, the industry leader.”
“Amex GBT’s business has rebounded to 61 percent of its pre-pandemic level from just 25 percent at the peak of the omicron outbreak.”
“WT, a business-travel company that provides services to one-third of S&P 500 members, says bookings today exceed half of normal levels, up from as little as 20 percent at the start of this year.” READ MORE
FINANCE
Ami Kassar continues to warn about the need to manage your EIDL loan: “The SBA finally shut down the Covid-19 EIDL program last week after the program officially ran out of money. As of the most recent SBA report, the numbers for the program are staggering: almost 4 million loans were approved for over $393 billion. So now what? EIDL borrowers beware: If your loan was for over $25,000, the government filed a lien against your business. You will have to deal with this issue when it comes time to get a new loan, sell your business, or buy out a partner.” READ MORE
MARKETING
This is why offering free shipping is so effective: “In a study about free shipping in ecommerce, former Wharton School professor David Bell found that free shipping lulled buyers into financially unsound decisions. The consumers he studied preferred to save $6.99 and get free shipping, versus saving $10 on the purchase price but still paying for shipping, even though the savings would have been greater. In addition to the positive glow inherent in the free offer, Ariely says the popularity of free shipping is attractive for another reason.”
“Consumers, he says, have a difficult time understanding why shipping should cost anything: They feel OK paying for a tangible product, but they don’t compute how the time and labor involved with shipping should drive up the price.” READ MORE
Buy Now Pay Later firms are sending the TikTok generation deep into debt: “You may have seen some of these names — Klarna, Sezzle, Zip (formerly Quadpay), Afterpay and Affirm — pop up as you shop online, presenting an easier, more seamless alternative to having to type out your credit card information again and again. With a few clicks and a small down payment, you’ll have what you ordered on hand — all you need to do now is complete your four payments. The services, also known as point-of-sale loans, are heavily marketed by influencers and brands on TikTok and Instagram.”
“They giddily display their ‘hauls’ from the most popular brands, not just normalizing debt, but actually glamorizing it — and selling it as a way for trend-conscious young people to have all the coolest consumer goods, whether they have the cash on hand or not.”
“One video, posted in September last year by TikTok user Lillian Bradford, features her in a faux-fur coat and gold earrings. ‘I was fully under the impression that I only owed maybe $300 max on Afterpay,’ the text reads.”
“Then a screenshot pops up with her balance: more than $2,000.” READ MORE
THE ECONOMY
The tech industry is bracing for a slump: “There's a growing sense among tech industry figures that the good times are rapidly coming to a close, and a once-in-a-generation down-cycle is here. Ugly layoffs may be brewing across the board, some investors and industry watchers warn — from public tech giants to scrappy startups. ‘This will be in the top three corrections of the last 20 years — joining the 2008/2009 Great Recession and the 2000 dot-com crash,’ said David Sacks, cofounder and partner at Craft Ventures.”
“‘It's a course correction because that hype and the peak usage was unsustainable,’ said Nitish Mittal, a partner in the technology practice at research firm Everest Group. ‘A lot of this is dependent on the central premise that people are at home and using these services a lot of the time — that is just unsustainable as we recover from the pandemic.’”
“This week, celebrity video app Cameo laid off 87 employees— roughly a quarter of its staff. Thrasio, a startup that aggregates hot brands on Amazon and has raised more than $3 billion, let go of roughly a fifth of its workforce recently.”
“‘The next 6-8 weeks is going to be a bloodbath,’ tweeted JD Ross, cofounder of music investment platform Royal. ‘I'm hearing rumors about a ton of companies preparing to lay off 20-40 percent of their team.’" READ MORE
HUMAN RESOURCES
At least for now, the labor shortage continues, and business owners are turning to teens: “Teens are now working in greater numbers than they have since before the 2008-09 financial crisis, when summer and part-time jobs were a more common rite of passage into adulthood, government statistics show. They have become particularly essential in the retail, tourism, and hospitality industries, which many adults left behind during the pandemic.”
“Many business owners say finding teen hires can be difficult. They are scouting teen job fairs, making schedules more flexible, and increasing training to accommodate and entice youthful recruits.”
“Itai Ben Eli, a Houston restaurateur, said being someone’s first employer comes with extra responsibilities but has been worth the investment.”
“A nearly all-teen staff, which he said he lured with wage increases, made it possible for him to open a European-style bakery, Badolina, last June when he couldn’t find the adult workers he needed.” READ MORE
Unions are looking to organize coffee shops and restaurants: “Efforts to organize Philly’s food scene have floundered before, but this time could be different. Last year, employees of the Wayward restaurant and its adjoining hotel, Canopy by Hilton, organized a union; in March, they won their first contract. Twenty workers at Good Karma Cafe voted to unionize in March. Old City Coffee workers pushing to unionize narrowly lost an election, 15-13, in April. Multiple sources say more local campaigns are brewing.”
“‘These are typically smaller employers — one swing vote makes a huge difference in the extrapolation of how the votes will come out at the end,’ Minter added. ‘The economics within the industry are tougher for the employer, and ... they tend to use that as a tool to fight a union-organizing attempt.’”
“Baristas at Good Karma and Old City Coffee framed their desire to unionize as a testament to their dedication to their workplaces. After all, in this labor market, it’s easier to find another job than it is to lead a union drive.”
“One owner who has gone into more detail about confronting the prospect of a union is Larry Margulies of Pavement Coffeehouse, which has eight cafes in Boston. Margulies declined a request to speak to The Inquirer, but he penned an editorial for WGBH last summer.”
“‘Last week, I went to my desk and read a notice that every small-business owner dreads: My employees wanted to form a union,’ he wrote. Margulies weighed the plight of debt-laden employees shelling out thousands for rent against his position as an operator still recovering from the pandemic. Ultimately, he voluntarily recognized the union.” READ MORE
POLICY
Abortion restrictions may already cost the economy more than $100 billion a year: “[Women’s Policy Research] released a study in May 2021 estimating that current state-level abortion restrictions cost the U.S. about $105 billion annually due to reduced earning levels, increased job turnover, and time off for women between 15 and 44 years old. Now, if Roe is overturned, that cost will get much higher, something that people don’t often think about in abortion discussions, Nicole Mason, CEO of the Institute for Women’s Policy Research, told Fortune.”
“If all current state-level abortion restrictions were eliminated—not even considering a Roe reversal—the IWPR estimates that 505,000 more women of reproductive age would be in the workforce and earning about $3 billion annually.” READ MORE
TECHNOLOGY
Not investing in crypto and NFTs just might turn out okay: “Cryptocurrencies, blockchains, NFTs and the constellation of hyped-up technologies known as web3 have been celebrated as a way to liberate the internet from the tech giants who control it now. Instead what’s happening with Bored Ape suggests they’re doing the opposite: polluting the digital world in a thick haze of errors, swindles, and expensive, largely unregulated financial speculation that ruins whatever scrap of trust still remains online. The latest ape sale took place last weekend, and it was a disaster from top to bottom.”
“Huge demand overloaded Ethereum, the open-source blockchain that hosts the Ether cryptocurrency and had been developed to be a more capable crypto system than Bitcoin.”
“The technology’s shortcomings led to thousands of people paying about $180 million collectively in transaction fees. Some appeared to pay more in fees than what they paid for the NFT.” READ MORE
FINANCE
Microloans were supposed to reduce poverty by supporting small businesses: “The roots of today’s microfinance industry can be traced to a $27 loan. It was 1974, and Yunus, who had a Ph.D. in economics from Vanderbilt University, was searching for ways to help people find a path out of poverty. In the village of Jobra, he met farmers and artisans too poor to qualify for bank credit who financed their businesses with small loans at usurious rates. Yunus helped them refinance to a much lower rate by calculating the total debt of the village’s business owners and lending that amount to 42 women who agreed to act as co-guarantors. That model—small loans at low interest rates to groups of borrowers—became the template for Grameen. It also launched a worldwide movement.”
“Suicides, debtors’ prisons and delinquent borrowers forced to sell their land—the grim social costs linked to microfinance a decade ago were supposed to be a relic of the past.”
“But efforts to clean up the industry lost momentum, and today billions of dollars are flooding into a system that promises the world’s poor a better life while often compounding their misery.” READ MORE
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