What Exactly Is a Small Business?
The fact that we can’t agree on a precise definition can have real consequences for some businesses.
Here are today’s highlights:
Lou Mosca on the challenges owners face most frequently, part two.
The true cost of laying off employees may be higher than you think.
Could your business come back from a disaster?
Why can’t we agree on a definition? “The House Committee on Small Business, a group of lawmakers focused on advocating for small businesses, heard from a quartet of small business owners on Tuesday about the Small Business Administration's size standards, or the formula that the agency uses to determine how to characterize a small business. Size standards can help determine eligibility for SBA programs, access to capital, and federal contracting opportunities. These standards also vary by industry.”
“A company working in iron ore mining with up to 1,400 employees is considered a small business. For logging, the SBA's size standard drops to 500 workers. For the electric power distribution sector, it's 1,100 workers. The revenue amount threshold assigned by the SBA to certain NAICS codes, which stands for the North American Industry Classification System, also varies.”
“Some business leaders argued before Congress that the current SBA framework does not incentivize growth. While the Silver Spring, Maryland-based government staffing firm Contemporaries has about 95 employees, its president Erin Allen, describes as onerous the SBA's limitation on revenue for her industry. Her business competes under the ‘Office Administrative Services’ NAICS code, which is capped at $12.5 million in contract awards.”
“‘If we lose our small business status, I anticipate I will have to lay off 30 percent of our employees,’ Allen said in Congressional testimony. ‘While some may get picked up by another contracting firm, others may not. This is especially hard to consider as we figure out what to do next.’” READ MORE
Last week, Lou Mosca — based on his 25 years at American Management Services — shared six challenges he most often sees business owners confronting. This week Lou brings us six more, including: managing cash, training, getting to know your people and your customers, and financial reporting. You can see last week’s video with the first six challenges here.
Bill Fotsch says the true cost of laying off employees can be much higher than businesses realize: “Most companies believe it's more profitable to let go of employees when the going gets tough. The current rash of layoffs is indicative of this. Sure, layoffs provide short-term relief and profitability, and they certainly improve the appearance of the next quarter's results. But our research indicates that the choice ultimately diminishes long-term profitability, with far-reaching consequences. High turnover rates can result in significant costs and the deterioration of institutional knowledge, not to mention the loss of sales.”
“More research shows that one employee's turnover can cost the business 150 percent of their salary—and depending on the position, it could be as high as 200 percent if you include hiring, onboarding, and training. These expenses can be deadly for a small business or a bigger company that incurs them often.”
“Three standout examples showcased in our HBR article—design/build company Adams + Beasley Associates, Canlis Restaurants, and Southwest Airlines—suggest the profitability inherent in an alternative approach. These industry leaders weathered the recent pandemic crisis without resorting to layoffs, showing unwavering loyalty to their employees.”
“While transitioning toward a loyalty-based culture may pose substantial challenges, the potential rewards are even more substantial. Embracing this approach not only cultivates a financially thriving company but also provides the satisfaction of contributing to something meaningful.” READ MORE
Fast food chains in California are waiting to see how much their competitors will raise prices: “Chipotle's Californian customers should expect a ‘significant’ price increase to make up for the state's new wage law for fast-food workers, executives at the burrito chain warned on Tuesday. ‘We know we have to take something as a significant increase when you talk about a 20-percent-ish increase in wages,’ Jack Hartung, Chipotle's chief financial and administrative officer, told investors during its fourth-quarter earnings call. Minimum wages for California fast-food workers will increase to $20 an hour in April under a law signed by Gov. Gavin Newsom in September.”
“‘We haven't made a final decision, in terms of pricing,’ Hartung said. ‘We'll wait and see just what the landscape looks like, what the consumer sentiment is, what other companies are going to do.’”
“Laurie Schalow, Chipotle's chief corporate affairs officer, later told Business Insider that the chain anticipates a price increase to be in the mid-single digits.” READ MORE
Shopify merchants are getting another price hike: “Shopify told merchants on Thursday that prices would be going up for its more expensive Plus plan, according to screenshots viewed by Business Insider. The change comes one year after Shopify raised prices for its base subscription plan. That change has positively impacted Shopify's bottom line. Wall Street analysts have since been looking for the company to raise prices for Plus, which is geared toward larger merchants.”
“Prices for Plus are increasing from $2,000 to $2,500 a month for merchants on a one-year term. The price change represents a 25 percent increase. If merchants sign up for a three-year term, they will be charged $2,300 monthly.”
“Merchants can keep their current rates if they opt into a three-year contract by April 24.” READ MORE
A tech reporter says the Apple Vision Pro could change everything: “Nick Bilton was reluctant to try the Apple Vision Pro. He was already skeptical of the product because of his past experiences with virtual reality headsets. Bilton, a special correspondent for Vanity Fair, found the original Oculus VR headset, now known as the Meta Quest, to be anxiety-provoking, in part because ‘you can’t see the real world.’ For the past 10 years, he says, whenever companies have rolled out new VR devices, ‘I put it on and then I put it in the closet and I never use it again.’”
“So when Apple announced what it dubbed the first ‘spatial computer,’ he recalls, ‘I had absolutely no desire to go and experience it.’ But, at the urging of his editor, he agreed to attend a carefully curated Apple demo. ‘I reluctantly put this thing on and then was completely and utterly blown away by it.’”
“‘This is the future,’ he tells me, akin to the epochal shifts from clunky desktop computers to sleek laptops and then to super-powerful smartphones. ‘There’s no question that we will eventually get to a point that the glasses on my face right now will be the Apple Vision Pro. I don’t know when…but that’s going to happen.’”
“Already, the new device has changed the way he works and the way he relaxes. While wearing the Apple Vision Pro, ‘it recognizes my laptop, and then I write on an iMac screen in front of me,’ Bilton says. ‘And I have research on this side, and I have music playing on the left, and text behind me, and it’s a pretty wild experience.’” READ MORE
Could your business come back from a disaster? “Twisted and charred aluminum mixed with shards of glass still lines the floor of the industrial warehouse where Victoria Martocci once operated her scuba diving business. After a wildfire tore through West Maui, all that remained of her 36-foot boat, the Extended Horizons II, were a pair of engines. That was six months ago, but Ms. Martocci and her husband, Erik Stein, who are weighing whether to rebuild the business, which he started in 1983, said the same questions filled their thoughts. ‘What will this island look like?’ Ms. Martocci asked. ‘Will things ever be close to being the same?’”
“Recently, they’ve worked with the Small Business Administration and have received a $700,000 loan. But at 64, Mr. Stein is uneasy about taking on the debt he would need to rebuild, especially considering how much uncertainty remains.”
“He needs a renewed permit with the state’s boating department to run his business, but to get one he needs a boat — and for now, the marine facility they have used for the past 40 years remains partly closed. ‘We are in such a holding pattern,’ he said. ‘There is no sense of when it will loosen up.’”
“The local economy remains in crisis. Rebuilding the town, according to some estimates, will cost more than $5 billion and take several years. And tense divisions still remain over whether Lahaina, whose economy long relied almost entirely on tourism, should consider a new way forward.” READ MORE
Si Spiegel, father of the mass-produced, artificial Christmas tree: “In the closing days of World War II, he was piloting his B-17 Flying Fortress in an armada of 1,500 Allied bombers that pummeled Berlin. Struck by anti-aircraft flak, two of the plane’s four engines lost power as Mr. Spiegel reversed course to return to England. Rather than bail out over Germany and risk being captured as a prisoner of war — especially given that he was Jewish — Mr. Spiegel managed to crash-land in Soviet-occupied Poland. After being stuck there for weeks, he improvised a daring escape, using parts of his own plane to jury-rig another B-17 that had crashed nearby, then flying to an American base in Italy.”
“For Mr. Spiegel, becoming the king of artificial Christmas trees was a fluke, but his religion did play a part. After the war, he applied to be a commercial pilot, but was told he was barking up the wrong tree. ‘They were blatant about it,’ he said in an interview with the New York State Military Museum in 2010. ‘It wasn’t that they gave you some excuse. They told you, We don’t hire Jews.’”
“After American Brush unsuccessfully branched out into the Christmas tree business, Mr. Spiegel, by then a senior machinist, was tasked with closing the artificial tree factory. Instead, he began studying natural conifers, tweaked the brush-making machines to emulate the real trees, and patented new production techniques. He left the renamed American Tree and Wreath Company in 1979 and founded Hudson Valley Tree Company two years later.”
“By the late 1980s, his company was generating annual sales of $54 million and employed 800 workers in Newburgh, N.Y., and Evansville, Ind. He sold the Hudson Valley Tree Company in 1993, retired as a multimillionaire, and turned his attention to cultural, educational, and social-justice philanthropy.” READ MORE
THE 21 HATS PODCAST
Why Would You Want to Own a Business? This week, Shawn Busse, Jay Goltz, and Jennifer Kerhin respond to a somewhat depressing view of business ownership offered by an investor who buys businesses for a living. That view, essentially, is that for most owners, building a business is a daily knife fight of long hours, unexpected risks, slow growth, and meager returns. In this episode, I read most of the investor’s observations to Shawn, Jay, and Jennifer, and get their reactions, which hit upon a bunch of issues that are not widely understood—including how fast growth can destroy a business, how even a profitable company can go bust, and why a good metric to assess the health of a small business might be how many people have been crying in the bathroom this year.
While Shawn, Jay, and Jennifer disagree vehemently with a few of the investor’s assertions—”Kiss my ass!” says Jay in response to one—they do acknowledge that he makes a lot of good points, which leads to an obvious question: Why would anyone do this? Why would anyone subject themselves to this kind of life? As you might expect, Shawn, Jennifer, and Jay have a response to that as well.
You can subscribe to the 21 Hats Podcast wherever you get podcasts.
Thanks for reading, everyone. — Loren