The Sriracha Secrets

David Tran built a billion-dollar hot sauce brand with no advertising and no sales team.

Good morning! 

Here are today’s highlights: Two small companies beat the banks to become the breakout stars of the Paycheck Protection Program. It was a pricing strategy that turned dollar stores into a $94 billion industry. And are the states scrapping unemployment benefits actually fixing the labor shortage?

PROFILE

David Tran, founder of Huy Fong Foods, has no sales team and no advertising, doesn’t worry about competitors, makes a year’s supply of Sriracha hot sauce in a 10-week span—and his company is likely worth more than a billion dollars. READ MORE

OPPORTUNITIES

Two small companies beat the banks to collect more than $3 billion in PPP fees: “Though Congress approved billions in aid for small companies to help them keep paying their employees during the pandemic, there was a big problem: It wasn’t reaching the tiniest and neediest businesses. Then two small companies came out of nowhere and, through an astute mix of technology and advertising — and the dogged pursuit of an opportunity that big banks missed — found a way to help those businesses. They also helped themselves. For their work, the companies stand to collect more than $3 billion in fees, according to a New York Times analysis — far more than any of the 5,200 participating lenders.”

  • “One of the companies, Blueacorn, didn’t exist before the pandemic. The other, Womply, founded a decade ago, sold marketing software.”

  • “Between them, the two companies processed a third of all PPP loans made this year ...”

  • “[Toby] Scammell had earlier discovered that banks didn’t want to bother with PPP loans for many of Womply’s clients.” READ MORE

HUMAN RESOURCES

The Wall Street Journal reports that Americans are leaving unemployment rolls more quickly in states that cut benefits: “Missouri cut off payments as of June 12, joining three other states as the first to do so. Seven states followed with an end on June 19, and this weekend, benefits are expiring in 10 more states. Four more states will curtail benefits by July 10. The number of workers paid benefits through regular state programs fell 13.8 percent by the week ended June 12 from mid-May—when many governors announced changes—in states saying that benefits would end in June, according to an analysis by Jefferies LLC economists. That compares with a 10-percent decline in states ending benefits in July, and a 5.7 percent decrease in states ending benefits in September.” READ MORE

But The New York Times reports that scrapping supplemental unemployment benefits isn’t helping employers fill jobs: “Work-force development officials said they had seen virtually no uptick in applicants since the [Missouri] governor’s announcement, which ended a $300 weekly supplement to other benefits. And the online job site Indeed found that in states that have abandoned the federal benefits, clicks on job postings were below the national average.”

  • “In St. Louis, the Element Hotel held a job fair to hire servers, bartenders and front-desk receptionists. Housekeepers were especially in demand.

  • The hotel, which is on a major bus line, raised its starting wage to $13.50 an hour, the second increase in two months. It also offers benefits and a $50-a-month transportation allowance.”

  • “The number of applicants shot up — to 40 from a handful the previous month — after the second wage increase.” READ MORE

Southwest Airlines is raising its minimum wage to $15: “The move will affect more than 7,000 employees and take effect Aug. 1, the airline told employees Friday. Southwest declined to provide the total cost of the increases, which will go to baggage and cargo handlers, workers who clean aircraft or deliver parts, reservations agents, customer-service employees and others. The airline had 56,500 full-time employees at the end of 2020.”

  • “The average wage increase at the Dallas-based carrier will be about $1.30 an hour. That equates to 7 percent to 11 percent more for new hires. For existing employees, it’s about a 3 percent to 10 percent hourly rate increase.” READ MORE

PRICING

Here’s how dollar stores became a $94 billion industry: “Dollar stores count on customers either not being able to afford buying larger sizes elsewhere, or simply not doing the math. One of Dollar Tree’s founders, Macon Brock, admitted as much in his 2018 autobiography. ‘When a customer walked into our store, she could shut off her brain. She didn’t have to think, didn’t have to calculate how much she was spending. All she had to do was count: one, two, three, four, five, six. I have six items, and I have $6. I can buy this.”

  • “For every $1 in sales, Dollar General and Dollar Tree earn an average gross profit of $.30. That’s higher than rivals like Target ($.28) and Walmart ($.24).”

  • “Dollar stores do this by going after the stuff nobody else wants: surplus items, discontinued products, and old stock that didn’t sell well elsewhere.”

  • “That $1 Old Spice deodorant might seem like a good deal. But at .8 ounces, it’s less than one-third the size of the standard 3-ounce stick—and on a per-unit basis, it’s significantly more expensive than the larger-sized offerings at other retailers.” READ MORE

ECOMMERCE

Sellers say their Shopify accounts were hacked and Shopify declined to help: “Insider spoke with seven Shopify merchants from four countries, all of whom outlined how they lost thousands of dollars via the platform and found Shopify unable or unwilling to help them recoup their losses. Some requested their names be changed or anonymity to protect their businesses from further losses. Shopify did not respond to multiple requests for comment on this story.”

  • “Hackers would get access to the seller's Shopify account and switch banking information, so funds from a seller's store would deposit into the scammer's account.”

  • “Mark, a seller on Shopify since 2019 who has been renamed for this story, lost more than $111,000 in payouts to a bank account that was not his, according to documents seen by Insider.”

  • “In all of these cases, Shopify told sellers it was their responsibility to recoup the funds and secure their merchant accounts, according to email correspondence between the sellers and the e-commerce company viewed by Insider.” READ MORE

THE ECONOMY

Capital spending by American businesses is boosting the recovery: “Companies are ramping up orders for computers, machinery, and software as they grow more confident in the outlook. Nonresidential fixed investment, a proxy for business spending, rose at a seasonally adjusted annual rate of 11.7 percent in the first quarter, led by growth in software and tech-equipment spending, according to the Commerce Department. Business investment also logged double-digit gains in the third and fourth quarters last year after falling during pandemic-related shutdowns. It is now higher than its pre-pandemic peak.”

  • “The recovery in business investment is shaping up to be much stronger than in the years following the 2007-09 recession.”

  • “Some of the recent increases in capital spending reflect a silver lining to the shortages of raw materials that many manufacturers have faced in recent months.”

  • “‘The flip side of the supply-chain bottlenecks that we’re seeing right now is that order backlogs are building,’ said Mr. Rosener, which he said in turn has led to higher manufacturing activity.” READ MORE

STARTUPS

Founded to address burnout and staffing problems in the veterinary industry, a Philadelphia startup is going national: “IndeVets, based in Center City, supplies veterinarians to animal hospitals along the East Coast with a business model that it designed to allow animal doctors to live saner lives. ... The company, which launched in 2017 and employs about 90 veterinarians, has already expanded into nine East Coast markets: Pennsylvania, New Jersey, New York, Delaware, Maryland, Virginia, Georgia, Florida, and Washington, D.C.”

  • “IndeVets' business model, [founder and CEO Michael] Raphael said, involves hiring veterinarians by offering ‘top-notch’ pay, extensive benefits, and the ability to choose when and where they work. The company has developed a technology platform and app to make it easier for the doctors to decide when they want to work and where.”

  • “‘Small veterinary hospitals are really small family businesses,’ Raphael said. ‘There are very few opportunities for veterinarians to pick their hours. With us they can pick the shift that works for them.’”

  • “Animal hospitals pay IndeVets an hourly fee, based on where they are located, for the veterinarians it provides.” READ MORE

POLICY

Black business owners talk about a year in the spotlight: “The murder of George Floyd stirred a critical conversation around race in America. In retail, that led to a push to support Black-owned businesses—from campaigns like The 15 Percent Pledge to accelerator programs, to lists of brands to buy from, and more. A year later, some entrepreneurs have mixed feelings on the efforts.”

  • “Some of the platforms that have reached out to me to carry my line, it made me feel a certain way because obviously I didn't just start my business. I had reached out to them, seeing that my product would be a great fit with their demographic, but I continued to be overlooked until then. So when they circled back to me, it didn't feel genuine.”

  • “We were thrilled to see many companies and mass retailers speak up about fairness, show outrage when injustices occurred, and display a human side and give a platform for issues of racial injustice. The companies and mass retailers who stood up were very well aware that this could affect their bottom line by taking a stand in the wake of George Floyd's murder.”

  • “We launched on the 99th anniversary of the Tulsa Massacre, which was an incredibly historic day: May 31. What that allowed us to benefit from was the increased attention on Black-owned businesses and people's desire to support Black-owned companies. We received a ton of organic reach—hundreds of millions of impressions, which is incredible for a startup.” READ MORE

INTERNATIONAL

Countries around the world are locking down again: “The rapid spread of the delta coronavirus variant has forced a growing number of countries to reimpose lockdowns and other public health restrictions, raising fears that the more contagious variant was hampering global efforts to contain the pandemic.The new curbs on travel and daily life stretched from Australia and Bangladesh to South Africa and Germany, where authorities over the weekend set new limits on travelers from ‘virus-variant zones’ such as Portugal and Russia.”

  • “South Africa on Sunday extended a nightly curfew and introduced a ban on gatherings, alcohol sales, indoor dining and some domestic travel for 14 days to halt a worrying surge in cases driven by the delta variant, President Cyril Ramaphosa said.” READ MORE

THE 21 HATS PODCAST

Episode 65: This Is Where We Get Into Therapy: Once again this week, our business owners discuss things business owners don’t often talk about in public. Laura Zander says she feels guilty about taking vacations, about making more money than her employees, and about knowing that her husband is closer to their son than she is. Paul Downs says he recently reviewed 29 years of P&Ls and was reminded that he lost money in 18 of those years. He also explains why he routinely tells his employees (and us) precisely how much money he takes out of his business. This week, we also set a podcast record for use of the phrase, “Oh, my God!”