The Alternative-Lender Trap
Ami Kassar reminds that while online lenders may seem tempting, the SBA is a much better deal.
Here are today’s highlights:
Is TikTok a gift or a clear and present danger?
The fall of gas prices portends a rise in consumer sentiment.
Are you sure you want to offer a discount for early payment?
Nobody wants to work? Maybe nobody wants to work for you.
Here’s how a small, family-owned retailer rode the wave when Alabama sorority rush took over TikTok: “Founded as a wholesale warehouse for pants in 1950 in Leeds, Alabama, the Pants Store is a third-generation family business run by Michael Gee, whose grandfather started the company out of the trunk of his car. Not being a TikTok user, Gee had no idea his business had gone viral on the platform last year. It was his then-14-year-old daughter who told him. In just one week, online sales soared by more than 600 percent year-over-year. Orders from out of state—particularly from other college towns—skyrocketed. ‘It went wild,’ says Gee, who runs the retailer's six locations across Alabama with his brother John Gee. ‘It was crazy.’”
“[Michael Gee] lets his younger employees take the reins when it comes to social media, and today the brand has a two-person social media team to keep its feeds fresh with multiple posts a day.”
“In one recent TikTok, which has been viewed nearly a quarter of a million times, the branded green and white Pants Store van drives past the row of University of Alabama sorority houses through crowds of cheering fans.”
“When the millions of people enjoying RushTok started searching online to find out if the Pants Store really sold more than just pants, its website handled the surge of traffic and orders without any hiccups or crashes. Gee had already invested in e-commerce when Covid-19 forced the company's six brick-and-mortar locations to close.” READ MORE
Meanwhile, in this podcast, Professor Scott Galloway offers a bracing lesson in how TikTok works, why it’s so dangerous, and why Donald Trump may have been right to try to ban it:
Listen to the Podcast:
Ami Kassar warns against falling into the alternative-lender trap: “In several deals we have recently been working on, we have come across an alternative business financing platform called Boopos. The site offers quick decisions, no personal guarantees, and terms of one to five years. We understand that the APR ranges are 15 to 25 percent. Some unscrupulous business brokers are pushing prospective buyers to this platform, instead of going through the longer and more difficult process of getting an SBA loan. They want to earn their commissions and get the deal done.”
“Don’t fall for this trap! The most important factor to consider in a financing solution is what your monthly payment will be.”
“Short amortizations and high interest rates might lead to a quicker approval but won’t support your needs in the long run.” READ MORE
Ami also says that offering vendors discounts for paying quickly may be a mistake: “While cash is king, there might be better ways to get the job done. Consider offering a 3 percent net ten discount. So instead of earning $100, you will receive $97 instead of waiting 60 days which are the standard terms of your customer. What if you didn't take the cash discount and waited 60 days to get paid? And during that 60 days, you borrowed from your line of credit at 8 percent interest because you needed the cash? In this scenario, your interest expense for the 60 days would be $1.33, and you would save $1.67.” READ MORE
For the first time in five months, the national average price of gasoline has fallen below $4: “The average cost of a gallon of regular unleaded gasoline fell below $4 on Wednesday, according to energy data provider OPIS. That is well below the record high of $5.02 reached in mid-June but still about 80 cents a gallon higher than prices were a year ago. The drop in national gasoline prices came as the Labor Department reported that U.S. inflation eased slightly to an 8.5 percent annual rate in July.”
“Gasoline prices have an important role in how people think the economy is doing and how quickly they expect other prices to rise, economists say. The public sees pump prices every day in foot-high lettering as they commute to work or walk around city streets.”
“‘Gas prices are just really salient,’ [Carola Binder, a professor at Haverford College] said, adding their decline should be helpful for the broader economy. ‘It should reduce consumer-inflation expectations and improve consumer sentiment.’” READ MORE
In Japan, business owners have traditionally apologized for price increases: “When the maker of a well-known Japanese popsicle lifted the sales price for the first time in a quarter-century a few years ago, dozens of executives and workers bowed deeply in apology in a somber television commercial. The company, Akagi Nyugyo, is now planning to raise the price of nearly three dozen other ice cream products. This time there’ll be no displays of contrition. ‘We’re suddenly facing a tsunami of price increases’ for materials, said marketing director Fumio Hagiwara. ‘We will raise prices in order to survive.’”
“Businesses routinely apologize to customers, even for small issues such as failing to answer the phone quickly. Train operators will broadcast apologies on platforms when train services are as little as a minute late.”
“When food company Yaokin raised the price for its flagship umaibo puffed corn snack by 2 yen—about 1.5 cents—to 12 yen in April, it published a message about the change on Twitter that might have seemed too blunt only a few months earlier: ‘We need to make a profit so that we can continue to ensure the survival of the snack industry.’” READ MORE
“No one wants to work anymore” is a trope that’s been around forever—but it’s not the whole story: “Emily Rose McRae, senior director of research at consulting firm Gartner, said ongoing staffing shortages present an opportunity for employers to fundamentally rethink their relationship with their workforces — especially as low immigration, an aging workforce and lack of affordable childcare create structural shortfalls that are likely to reemerge even if recession temporarily curbs demand. McRae said while many service-sector employers have invested heavily in desk workers, the frontline workforce is a tool that’s replaced constantly. This model is backed by the assumption that there will always be a supply of frontline workers. This practice isn’t inherently bad, she said. ‘But if the workforce is a tool, you need to be upfront or compensating accordingly — otherwise nobody will work for you.’”
“An alternative model is to see the workforce as a cornerstone, a more permanent relationship where frontline workers form the foundation of the business. That means investing more in workers and offering training and career development, though it comes with the risk that those workers could still choose to leave.”
“‘The second part of the sentence often goes unsaid: Nobody wants to work — for what I want to give them,’ McRae said. ‘If your entire business model is dependent on paying the lowest possible wages and now you can’t pay people enough, you have a problem. You have to adapt.’” READ MORE
THE 21 HATS PODCAST
Trash, Rats, and Garbage Juice: A Case Study in PR. This week, Liz Picarazzi tells Jay Goltz and Sarah Segal about her first brush with bad publicity. Liz’s debacle started with a negative post that appeared in a prominent local blog. It was about a Times Square pilot program for which her business, Citibin, is supplying trash bins. The problem? The bins were not being maintained properly, and there were photos to prove it. At the time we recorded this conversation, Liz was bracing for additional stories in both the New York Post and The New York Times. Both of those stories have since been published—we’ll talk about them in a coming episode—and you can find links to all of the coverage in the show notes. For Liz, perhaps the biggest challenge was defending her company without trashing her client.
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