Why She Manufactures in China
And why she’s flying to Vietnam next week. Liz Picarazzi offers the small business perspective on the looming trade war.
Good Morning!
Here are today’s highlights:
Lou Mosca on the importance of determining an acceptable range for your overhead costs.
Under a new proposal, San Francisco’s small businesses would pretty much pay no local taxes.
Are you looking to hire a “pure” manager or a “working” manager?
The Wall Street Journal says investors, across the board, have rarely had it so good.
MANAGEMENT
In this week’s video, Lou Mosca says most business owners like to focus on driving revenue: “But remember, by taking control of your costs, you can steer your business in a more favorable direction. Your overhead should be within a specific percentage range of every dollar of revenue you generate. That percentage should make sense to you and your business and shouldn't be assigned arbitrarily. By determining your overhead's appropriate level, you can strategically manage your business's financial health, including raising and lowering prices.” CONNECT WITH LOU
MANUFACTURING
Liz Picarazzi explains what the increased tariffs will mean for Citibin: “Most of what is written about tariffs and the trade war with China is about what Biden and Trump are saying on the campaign trail. It’s about big companies and huge industries that want, and arguably need, protection from China’s unfair trade practices. What’s missing is the perspective of small American businesses that manufacture in China and import their products to the United States. That’s my perspective, and I want to share it because it’s complicated, a little scary, and evolving in real time. My current tariff rate is 11 percent, it will be going to 28 percent under Biden, and would go to at least 60 percent under Trump.”
“Since there is a lack of small business voices represented in the debate about tariffs, I plan to share a series of articles about what the new tariffs will mean for me, my business, my customers, and the strong working relationship I have formed over 7 years with my factory in China.”
“After producing in the United States for five years, I made the decision in 2017 to move production to China. Why? There were a lot of reasons, but to boil it down, I had a growing company that wasn't yet able to pay me, was operating at a loss, and was carrying debt. With my house mortgaged against the business.”
“I’m a sample size of one, but the truth is that I have had a very good experience manufacturing in China. I’ve been with the same factory for seven years, and in that time the business has grown 10X, we've developed many new products from concept to production, and have never been let down on quality.” READ MORE
Are you concerned about how the tariff increases may affect your business? If so, Liz Picarazzi and I are putting together a virtual discussion group to track the changes as we learn more and to consider how businesses can best respond. If you’re interested in joining the group, please let me know by replying to this newsletter.
HUMAN RESOURCES
Are you sure you want to hire a manager with corporate résumé? “As your company grows out of its infancy and begins to scale up, you'll need to hire or promote people into management roles. I've written before about how critical middle management positions are to a business's success. But what's also critical to understand is the kind of manager you need for the job, which can depend on the business size. The critical distinction is that when you're ready to hire a manager, are you hiring someone who is a ‘pure’ manager or a ‘working’ manager?”
“Someone whom we can describe as a pure manager performs all the classic management tasks: budgeting, planning, administration, and guiding people. These critical functions can help or hinder a team's performance. That's why a good manager creates value for the business. This is especially true in large, complex organizations where the scale of people and processes makes tackling pure management tasks a full-time role. But if you are running a growing, entrepreneurial venture, a pure manager might not fit your needs well.”
“Many entrepreneurial CEOs fall into the trap of hiring pure managers when they really need working managers. This often happens when the CEO gets dazzled by the résumé of a candidate. When they see someone with a degree from an Ivy League school and years of experience working for large, recognizable brands, it can feel like you're adding a high-powered all-star to your team.”
“The problem is that most people with this kind of work experience are pure managers. They developed a skill set based on the needs of managing a large organization. But in a growth business, you need every set of hands pulling as hard as possible. You can't afford to have anyone in a pure management role. Smaller firms need working managers instead.” READ MORE
TAXES
OPINION: San Francisco looks to press reset with a grand bargain on taxes: “The city’s budget has a billion-dollar hole in it; downtown office occupancy is about half of 2019 levels, the worst among major U.S. cities; and large employers—including Google, the great golden goose of the 21st century—are fleeing the city center. The city’s solution is a much-ballyhooed proposal to reform its tax code, released last week. The grand bargain, which would go before voters this November, has something for everyone around the table. The richest companies, some of which would see lower taxes, would have more predictability about what they owe. Small businesses would overwhelmingly pay no taxes.”
“As an added bonus for businesses, tax increases set to take effect next year would be pushed further into the future. The proposal—supported by everyone from Mayor London Breed and Board of Supervisors President Aaron Peskin to big- and small-business groups and organized labor—even includes some limited tax cuts, something that the business community has been pining for.”
“The headline here is that the city has finally accepted that it has a problem. Think of it as a municipal version of the Kübler-Ross stages of grief, with the City Family having moved fully past denial and into the bargaining phase.”
“But in spite of the city taking a laudable first step, all is not rosy here. In actuality, the proposal is a contorted mess, one that gets fuzzier the longer you stare at it. What the city came up with after months of negotiations is complicated, opaque, and not nearly as radical as its supporters would have you believe.” READ MORE
POLICY
Farmers are getting free solar-power installations: “Jerry Howle was skeptical about installing a $300,000 solar-panel system on his South Carolina chicken farm. Then he found out he could get it free of charge. Solar panels now sit on his two chicken houses, powering giant fans that keep as many as 60,000 birds inside cool. The panels are being paid for entirely by subsidies from President Biden’s climate law and will virtually eliminate the farm’s $10,000 annual utility bill. ‘It’s a lot of breathing room,’ said Howle, 42, whose family in Hartsville, S.C., has been squeezed by rising fuel and electricity costs.”
“Howle is among the rush of people capitalizing on a wave of federal tax credits, grants, and loans for solar power, electric cars, and other cleaner-energy alternatives. The $1 trillion in funding is being made available through the climate law, known as the Inflation Reduction Act.”
“The generous subsidies are making renewable power a possibility in poorer communities like Howle’s, where the poverty rate is more than double the national average. Such projects can sharply reduce energy bills, but their high upfront costs had until recently put them out of reach for many families and businesses.”
“The cherry on top: He could end up making extra money by selling any excess solar power to the local utility.” READ MORE
THE ECONOMY
The Wall Street Journal says investors have rarely had it so good: “The Dow Jones Industrial Average crossed the 40000 mark for the first time Thursday amid an almost picture-perfect investing environment featuring resilient corporate profits, low unemployment, and easing inflation. Most everything is going up—established Dow stocks, faster-growing tech shares, bitcoin and other cryptocurrencies, and even gold and other precious metals. Risk-averse investors have a bounty of options, too, including certificates of deposit offering yields of about 5 percent and rising junk bonds and other fixed-income investments, adding to the glow.”
“Growth stocks are expensive, but the rest of the market isn’t, says Ben Inker, co-head of asset allocation at Boston-based investment firm GMO. He says the overall investing environment, with its many reasonable choices, has rarely been this attractive in 24 years.” READ MORE
STARTUPS
Almost Home, a new kind of coffee chain, is opening its most ambitious location in Philadelphia: “Owner Robbie Doran has positioned it as a community hang. Besides the music room and free Wi-Fi, there are breakfast, brunch, and lunch cafe options from a scratch kitchen, and — three nights a week — full-service dinner. Doran roasts his own coffee. Cocktails are available, too, part of an arrangement with GLU Hospitality, whose partners Derek Gibbons and Tim Lu are friends from Doran’s days as liquor mogul, running Devotion Spirits in New York. This is Doran’s seventh location of Almost Home in 3 1⁄2 years, since he replaced a deli in Lincroft, N.J.”
“The other shops, serving a more limited menu, are scattered through North Jersey, mainly in Monmouth County and the Jersey Shore. A smaller outpost is due to open soon at Hagert & York, a new luxury apartment building in Kensington. The goal is 15 by the end of 2024, and 30 by the end of 2025.”
“The business has grown largely through word-of-mouth, Doran said. ‘It was just a lot of locals, friends, and grassroots marketing,’ he said. ‘I think it’s just been people falling in love with a kid that had no business opening up a coffee shop and cafe, and no experience in the restaurant industry besides selling booze.’”
“After eight years in the liquor industry, ‘I got exhausted from that scene,’ he said. He moved to Asia in 2019, making his way to Vietnam and Thailand. ‘I worked on a coffee farm and got into the [coffee] lifestyle and culture that’s really big in the Eastern Hemisphere,’ he said. ‘It’s not a fast grab-and-go. It’s more of a come in, have coffee, sit down, enjoy, speak to whoever and really take it all in.’” READ MORE
THE 21 HATS PODCAST
Yeah, I Can Hold Myself Accountable: This week, in episode 195, Mel Gravely tells Jay Goltz and Liz Picarazzi about his recently executed succession plan, including what’s worked and what could have gone better. The main thing that could have gone better, Mel says, is his purchase of another small business where he says he misdiagnosed the challenges the business is confronting: “I thought they just had a bad model and they weren't managing it well. It was worse.” All of which leads to a discussion of the role that a board of advisors can play in helping an owner build a business. While Mel has said he wouldn’t run a lemonade stand without a board, Liz and Jay—like most business owners—have taken a different approach. The notion of having a board of advisors, Jay tells us, is something he struggles to get his head around.
You can subscribe to the 21 Hats Podcast wherever you get podcasts.
Thanks for reading, everyone. — Loren