The Real Rewards of Building a Business
The unexpected loss of her mother was devastating, but it led directly to her starting a business, which brought satisfaction and happiness she hadn’t known was possible.
Good Morning!
Here are today’s highlights:
A study finds being an entrepreneur can be less stressful than being an employee.
Latino immigrants are starting businesses far faster than the overall population.
A legal settlement gives merchants a break on credit-card fees.
Farmers are giving up on insurance.
THE ENTREPRENEURIAL LIFE
After the unexpected death of her mother, a copywriter for a big-box retailer left New York City, moved back to her hometown of Ocean City, Md., and opened a book and wine store: “I opened the store wanting to bring great writing and wine to my town, and believing I was the person to do so. And I had been right. I trusted my gut and my taste. Our book selection leaned literary, with a diversity of voices, yet peppered with titles I knew would sell — small numbers of BookTok-approved beach reads allowing for whole shelves of translated literature and small-press poetry. Handwritten tasting notes hung from every bottle. But I also opened it because I felt I had nothing left to lose. Because of that futile mindset, I gained everything.”
“Over the first few months the store was open, I would find what my life had been missing: satisfaction. A level of fundamental happiness I hadn’t known was possible in the slog of my former life. Gained from pressing a beloved book or bottle into someone’s hands, just as I imagined, knowing they would bring joy, and in operating a space I built, literally (mostly), with my own two hands.”
“Two and a half years later, we are flourishing. I may work constantly — when you own your own business, it’s never off your mind — but I love the job deeply. The same goes for my life. I have ownership: of my freedom, time, career, and soul-filling pursuits.”
“I do not answer to Jeff in Accounts anymore; over Teams, I have a team of faithful, fantastic employees who are friends, too. I delight now in telling people — or men, really, it’s always men — who ask what my husband does that ‘lets’ me do this, that I am the sole owner and single.”
“There isn’t enough time to waste on just fine, or in going through the motions of a life you designed when you were 16 and that doesn’t fit you at 30-something. I was lucky enough to be able to realize that, albeit in a fit of grief, and do something about it.” READ MORE
Could starting a business actually reduce stress? “A 2020 study offers important clues as to why entrepreneurs report less stress than the average American. Economists at Colorado State University and Florida Atlantic University concluded that founding a business fosters a greater sense of purpose as entrepreneurs experience more autonomy and competence at work. And although we’ve been taught that being an employee is the safer financial path, a 2022 JP Morgan report indicates that the median self-employed household has a net worth more than four times greater than the median worker. Counterintuitively, launching a business yields greater financial stability than working for an employer.”
“I recently commissioned a proprietary study of 1,100 current and prospective entrepreneurs, asking about their perception of entrepreneurship, motivation for starting a business, and experiences at work. We then compared those who recently started a business against employees who have considered doing so but have yet to take the plunge. We uncovered three key barriers, all of which are grounded in erroneous assumptions about entrepreneurship.”
“First, aspiring founders believe they need significantly more experience, industry knowledge, and financial savings to launch their business than actual business owners possessed before starting theirs. In other words, they impose higher, often unrealistic standards upon themselves.”
“Another major barrier deterring people from starting a business is the fear that entrepreneurship will demand excessively long hours, severely impacting their personal lives and relationships with family. Our research tells a different story. As it turns out, most new entrepreneurs work the same total hours they did before starting their business, with one notable difference: They do so while experiencing less work-related stress.” READ MORE
STARTUPS
Latin American immigrants are starting businesses at more than twice the rate of Americans as a whole: “The jump in Latino entrepreneurship has driven up the overall share of new businesses owned by immigrants, who accounted for 36 percent of launches last year compared with 25 percent in 2019, according to a new analysis of Census Bureau data. New-business creation by white and native-born Americans has slowed in the past two years, following a broad surge early in the pandemic.”
“For many immigrants, entrepreneurship is a matter of necessity. Limited proficiency in English can make it hard to find a job; credentials earned outside the U.S. often aren’t easy to translate into professional opportunities.”
“Entrepreneurship is an especially attractive option for undocumented immigrants because it doesn’t require work authorization or a Social Security number, said Iliana Perez, executive director at the nonprofit Immigrants Rising, which focuses on the undocumented.”
“While Latino-owned businesses are mostly mom-and-pop operations, they also include venture-backed firms. Venture-capital-backed startups with Hispanic founders tend to be concentrated in financial services, healthcare, commerce, and shopping, according to Crunchbase, which estimates that these firms receive less than 5 percent of venture funding.”
“Palo Alto, Calif.-based MiSalud Health offers employer-provided healthcare services to Spanish-speaking employees in industries such as hospitality, agriculture, and construction. The three-year-old company has raised $9 million in early-stage financing.” READ MORE
PAYMENT
A legal settlement means retailers will get a break on credit-card fees: “Visa and Mastercard have agreed to cap the so-called swipe fees they charge to merchants that accept their credit cards, as part of a class-action settlement that could save merchants an estimated $30 billion over five years — the latest development in a nearly 20-year legal battle. Each time a customer uses one of its credit cards, Visa or Mastercard collects a swipe fee — also called an interchange fee — for processing the transaction, which it shares with banks issuing the cards. The merchants pass those fees along to customers, a practice that effectively inflates prices (and may motivate discounts given to customers paying with cash).”
“In addition to putting a ceiling on the swipe fees — an average of 2.26 percent of the transaction, according to Nilson — Visa and Mastercard agreed to roll back the posted swipe fee of every merchant by at least 0.04 percentage points for at least three years.”
“For five years, the companies will not raise the fees above the posted rates at the end of last year. Systemwide, the average fee must be at least 0.07 percentage points below the current average rate, a calculation that an independent auditor will verify.”
“Merchants will also be permitted to adjust their prices based on the costs associated with accepting different cards, while letting customers know why some cards — typically business cards and those with more rewards and perks — cost more than others.”
“Ron Shevlin, chief research officer at Cornerstone Advisors, a bank consultancy, said the most meaningful part of the deal might be the ability of smaller merchants to band together to negotiate fees as large groups. ‘This is where the door has opened,’ he added, ‘to something they haven’t had the power to do.’” READ MORE
The settlement could also have a big impact on credit-card points: “Even though the networks set interchange fees, the card issuers (banks like JPMorgan Chase and Bank of America) get the lion's share of the revenue. Last year the biggest U.S. banks took home $31 billion of interchange and merchant processing income, according to Bloomberg. Again, you ask, what does that have to do with my points? Well, a good chunk of that revenue is spent by banks encouraging you to use their fancy cards. And the best way to do that is via points and rewards. Cards with better rewards and cash-back economics typically charge higher interchange fees.”
“Merchants have to accept all types of credit cards from Visa and Mastercard under an ‘honor all cards’ rule. But now, they'd be able to charge consumers more depending on the type of card they're using.”
“The agreement hasn't yet been approved, and time will tell how merchants and banks handle the changes. But the points game can be one of fine margins, and a change to interchange fees could have ripple effects for rewards programs.”
“Don't be surprised if it starts taking a lot longer to rack up the points required for your next getaway.” READ MORE
HUMAN RESOURCES
The bidding war for AI skills is really heating up: “Tech companies are serving up million-dollar-a-year compensation packages, accelerated stock-vesting schedules and offers to poach entire engineering teams to draw people with expertise and experience in the kind of generative AI that is powering ChatGPT and other humanlike bots. They are competing against each other and against startups vying to be the next big thing to unseat the giants. The offers stand out even by the industry’s relatively lavish past standards of outsize pay and perks. And the current AI talent shortage stands out for another reason: It is happening as layoffs are continuing in other areas of tech and as companies have been reallocating resources to invest more in covering the enormous cost of developing AI technology.”
“‘There is a secular shift in what talents we’re going after,’ says Naveen Rao, head of Generative AI at Databricks. ‘We have a glut of people on one side and a shortage on the other.’”
“Salespeople in AI are also in demand and hard to find. Selling at the beginning of a technology transition when things are changing rapidly requires a different skill set and depth of knowledge. Candidates with those skills are making around double what an enterprise software salesperson would.” READ MORE
INSURANCE
Farmers of fruits and vegetables say they can no longer get insurance: “Their predicament has left some small farmers questioning their future on the land. Efforts to increase the availability and affordability of crop insurance are being considered in Congress as part of the next farm bill, but divisions between the interests of big and small farmers loom over the debate. The threat to farms from climate change is not hypothetical. A 2021 study from researchers at Stanford University found that rising temperatures were responsible for 19 percent of the $27 billion in crop insurance payouts from 1991 to 2017 and concluded that additional warming substantially increases the likelihood of future crop losses.”
“Among those going without insurance is Bernie Smiarowski, who farms potatoes on 700 acres in western Massachusetts, along with 12 acres for strawberries. His soil is considered some of the nation’s most fertile. The trade-off is the proximity to the Connecticut River, a bargain that grows more tenuous as a warming world heightens the likelihood of flooding.”
“Mr. Smiarowski lost nearly $1.25 million worth of potatoes to floods last year, when heavy rains pummeled the area and water from the river seeped into his fields. It was the third straight year of challenging weather. ‘We had two extremely wet years, sandwiched around one of the driest years I’ve ever seen,’ he said. ‘We can’t sustain another year like last year.’”
“Even in an ordinary year, his expenses of $2,000 an acre yield returns ranging from a 20-percent profit to just breaking even. Mr. Smiarowski said the least expensive plans quoted to him — around $170 an acre annually — would be a significant outlay but would cover only 60 percent of the potatoes’ wholesale price. He sees the case for insurance, but for now, he’s simply hoping for the best.” READ MORE
LOGISTICS
The collapse of a bridge in Baltimore will have significant economic repercussions: “Experts told Business Insider that the port alone contributes $15 million in daily economic activity, which will come to a near standstill ‘until further notice.’ And that's just the beginning. ‘It's not just the Port of Baltimore that has been compromised,’ economist Anirban Basu, founder and CEO of Baltimore-based Sage Policy Group, told BI. ‘It's also the railroads, the trucking industry, the regional distribution centers, commuters, and other segments of the economy.’ Basu said those factors will push daily losses into the tens of millions of dollars until the shipping lane is reopened.”
“Although it's far from the largest port in the U.S., Baltimore is one of the more specialized terminals for autos and agriculture equipment, known as roll-on/roll-off cargo, as well as some bulk commodities, like coal.”
“While some cargo will have to wait, container ships can largely be rerouted to other east coast locations. Ryan Peterson, the CEO of global logistics firm Flexport, told Business Insider that 800 containers of his were destined for Baltimore, and are now being rerouted. Two containers were on the ship that crashed into the bridge.”
“When the Key Bridge opened in 1977, it completed the circle of I-695 around Baltimore and provided a crucial bypass route for hazardous materials which can't be transported through tunnels. That link is now broken, requiring vehicles to take a longer, slower alternate route.” READ MORE
THE 21 HATS PODCAST
What to Expect When You’re Expecting a Business: This week, Paul Downs, Jennifer Kerhin, and Liz Picarazzi discuss the challenges couples face when one spouse is building a business. Liz says it was important to let her husband know that she spent years working on a business plan before leaving her corporate job to start her first business. Paul explains why, when times have been tough, he hasn’t always shared the bad news with his wife. And Jennifer says too many couples planning for one spouse to start a business focus on best-case scenarios rather than the more likely worst-case scenarios. She also suggests some important questions for couples to ask themselves, including this one: “Will she still have faith in him if the business fails?
“Plus: Businesses fail all the time, of course, and Paul explains why he thinks it’s usually for one of three reasons. And four years after the pandemic arrived, we take a look back: What was each owner’s toughest moment? What was their best decision? How have their business models changed?
You can subscribe to the 21 Hats Podcast wherever you get podcasts.
Thanks for reading, everyone. — Loren