Dashboard: A Mass-Extinction Event for Startups?

[Music] welcome to another 21 hats dashboard brought to you by our sponsor the great game of business I'm Lauren Feldman and I'm here with Gan marks to talk about the things we think business owners should be following this week welcome Jean hello Lauren how are you I'm doing great how are you I am doing just fine enjoying the summer and uh looking forward to talking about small business baby all right let's do it uh Jean there's been a lot of talk this year about what's been called a mass extinction event for startups I think the basic idea is that especially after the failure of Silicon Valley Bank a lot of funding for startups dried up and because the basic business model of venture back startups is to grow at all cost and not worry about profits these startups were in big trouble CU they don't know how to make a profit and their funding was running out but you have a different take on it you're not really buying it what's your take I mean first of all you know there's like kind of like two there's like two worlds of startups that people talk about there's the Venture startup and then there's like the rest of normal life and right these Venture startups we all know the stories if you if you open a restaurant is that a startup yeah that's a startup you know I I mean I'm talking about like Venture that's definitely a startup I mean I'm talking about but but you're exactly right that is not what the world thinks of or you know we in the media sometimes I think do this we we we portray it as if you're not a startup unless you're trying to be a unicorn and raising tons of money right which is silly it's just a new business it's a it's a it's a starting up a business and you know when you're a venture capital firm you start up a new business and or you invest in startups and these are technology firms and you know all like you said to become a unicorn um but no there there's so there was like a venture capit Venture Capital funding just fell off a cliff um in the last quarter it's like at 40% of the levels that we're at in 2021 and uh you know there's you you know we all know why interest rates have gone up so much and uh banking is kind of collapsed in the technology industry and Venture capitalists are one venture capital guy is just like it's a mass extinction event for startups you know and I'm like dude you got to be kidding me I mean that that is so not the case when you look at new businesses so I like dug into it I mean I I I you the Census Bureau publishes every month um you know statistics of new business filings these are people that apply for Ein or you know employee identification numbers or employer identification numbers and I like to you know like focus on over the past three years since January of 2019 there's been over 20 million new businesses startups you know and those are like there's a lot of independent contractors and Freelancers and all that kind of stuff you know so I like to follow like high propensity businesses they call them those are basically businesses that are likely to hire people you know um so that number is a lot lower you know obviously but it's still really you know high like 7 million of them were high propensity businesses and those numbers are not dropping off and and what percentage of those do you think are venture-backed oh very few like two% probably right yeah two% yeah of these 7 million that have new started off and if you look at you know like in 2022 there was like 1.7 High propensity businesses that were started in 2021 it was 1.8 million and in 2023 through May we're on a track to have another 1.7 million of high propensity businesses start up you know I mean these are all new businesses that are that are coming online that are likely to hire people um not you know they're not none of these are going to be unicorns I'm assuming but there are restaurants and retail shops and uh small manufacturers and service businesses and e-commerce firms and whatnot so it we're still in a great environment for startups a great environment I don't believe it annoys me when I see like you know you know the Biden Administration posts like you know thanks to us we've got so many great startups and it's not really true I mean this has been going on since 2019 and it really blew up during covid um but it's continuing on so you know you know for all props to the current Administration I mean it's certainly not an anti-business climate where people aren't starting up companies but startups are healthy well there certainly is some uh some of that activity that came out of the uh inflation reduction act which was really a climate Bill and which has lots of money aimed at you know Green energy and things like that yeah it's true I mean I guess and there's there's really been nothing that I found um and that would be an interesting analysis to do like what you what new businesses were funded from the inflation reduction act I actually hope that's not the case I actually hope that I like to see Federal money going to existing businesses as opposed to startups um because you know I don't think the federal government is any better at identifying you know good startups than anything like for example like the chips act uh you know it's like $300 billion was going to chip manufacturers and the the you know 90 something percent of it is going to existing chip manufacturers you know some of them are foreign companies okay you know maybe but with you know there's still jobs in the US because they're building building in the US but these are like a like I feel more confident in giving you know you know you know a $100 million to Intel to build a chip factory than to some you know startup guy who says he's going to build the next great I just well that's kind of the same point we started with that's the Venture back model that is exactly one of the things I liked about your piece is I think it it kind of makes the point you know even a lot of those Venture back companies might be doing better if they had to make a profit in this environment and you know you know maybe it is a mass extinction event for for some of those companies but if some of them are forced to actually have a real business model that could be a good thing for them you know I was just talking to somebody just this week about you know we're in an environment of like you know elevated inflation obviously it's it's becoming more in control and high interest rates which is going to continue this year and this's a client of mine and he was like you know these high interest rates you know you know even if it's a 10% to borrow for a business um it it is it forcing us to make smarter decisions you know and there's a lot of dumbass decisions that were made by venture capitalist when money was basically free over the past 10 years and you know a lot of money got wasted by doing that and now you kind of think to yourself well maybe Venture Capital firms will you know they've got to think harder before they invest in companies and like you just said maybe ask for profits can you believe it as a return from a company but that that's never going to happen because that's not the Venture Capital model they want to they don't care if nine out of 10 fail so long as one hits it big it's true it's very true which is why you know I've always avoided myself in you know investing in a startup because the numbers are so against you it's like you really have to hit the jackpot you know on your first try because the even the Venture Capital firms to that's all they do for a living they never you know like you just said for every 20 they invest in one turns into that big return on investment you know and what really offends me about that is I mean that's their model and if that's what they want to do it's their money they can do what they want the shame of it to me is that some of those N9 out of 10 or 19 out of 20 that fail could have been good business successful businesses had they had a realistic business model and not bet everything on hypergrowth agreed they didn't have to scale up so fast they could have been nurtured easily they could have been really encouraged or even forced to get financing outside they could have been businesses yeah it's exactly right so I guess the bottom line is the piece this is in the guardian I wrote about it was this past you know last week and um you know the the bottom line of it is that no we're not in a mass extinction of startups I mean maybe the venture capital P people concern but you know you know entrepreneurs are starting up businesses at a rapid pace and I have not seen that uh decline so far and that's great news all right next topic you wrote another piece recently about what you call the new trend in healthc Care Health reimbursement accounts uh here's what I like about it I think business owners have enough to worry about without being responsible for their employees health insurance um to me that's just a crazy system it baffles me that we ever adopted it or that business owners wouldn't be fighting like crazy to get rid of it this seems to offer another option can you explain it to us by the way I couldn't agree with you more and I we I'm sure we've talked about this in the past but you know as you right of Center as I seem to be I mean I'm a big proponent of National Health you know I mean I just to me it always surprises me when you tell us that but I you have you're right we have talked about that yeah just takes that headache away from the business owner for goodness sake but okay you know it's it's not going to happen anytime soon that's for sure so um HRA are big these are Health reimbursement accounts and they are like exploding around the country their popularity is increased significantly and I'm finding myself with a lot of clients that are turning to hras and let me let me give it just a very simple explanation of what it is so anybody that's listening that's a benefit administrator so don't you know start shooting at me uh because I'm not getting into the details but here's what it is you know I have clients that have gotten rid of their health insurance plans alt together they've just we're not dealing with negotiating Health rates every year which is a rigged Market anyway and we're not um dealing with I don't want to know our health history of our employees I mean God knows how many Hippa violations we're you know we're we're in you God knows right they're just saying I'm out of the health insurance business we're going to open up an HRA for our employees which means that whatever we were spending on health insurance instead of spending it with the health insurance company we're going to give it to our employees here Lauren you're a great loyal employee of mine although you could be working a little harder I'm going to give you you know $1,000 a month for your health you know insurance which I was giving you anyway here's $1,000 a month now Lauren you go and get your own health insurance okay don't bother me with your go and do your thing go to the Health Care exchanges or here's a list of you know of of Brokers that we've that we've identified or that we that we approve of go and talk to them and they'll sell you health insurance you know their health insurance as well or or not you might decide you don't need health insurance because your wife's got health insurance whatever but the decision is left to you and that way although you know the employees aren't saving like cash out of pocket they don't have to negotiate they don't have administrative time they don't have the liabilities of knowing your employees health so they're just done they just deposit the money and say there you go and do your thing and I'm seeing a lot of small businesses do that it's it's been super popular let me ask you this when I was at Forbes um we had a Health Plan there that combined a high deductible health insurance plan with health what they called health savings accounts are health savings accounts the same thing as health reimbursement accounts no different that's a great question so if you have a high deductible plan and you have an HSA or a health savings account that means that you can put pre-tax money away as an employee into that Health Savings Account up to a certain amount every year and then you can take it out to pay for the stuff that your health insurance wasn't paying for like say you needed um you know like eyeglasses or I don't know you know in your case Lauren some type of you know you know Psychotherapy you know or acupuncture something that maybe your health plan isn't covering um you know you can take the money out and spend it on that and because it's pre-tax um you didn't get you know you're saving money on your taxes cuz because it reduced your you know it reduced your income when you put the money away it's like a 401k for health expenditures so that's just a health savings account for your employees that they contribute extra money to to pay for their non you know covered expenses and HRA is different with an HRA there's no Health clim you're just giving them the money and they're getting their own health insurance full stop does that make sense yeah is it um is it pre-tax it is so when I give you $1,000 I get a deduction for it and your employee does not get taxed on that ,000 so same thing and can is there any reason for an employee to put money into that account or so some H plans allow employees to contribute to those accounts as well depends on the type of HRA plan that you have but the answer is yes got it I guess the the question I have about this is you know as as you've referred to many times the the labor shortage goes on businesses are still competing fory employees uh you say a lot of your clients have tried this how are their employees accepting it do they like it or is it a turn off it's a great question so first of all you can have an HRA plan and your existing Group insurance plan so you can certainly give the choice to your employees the more that do the HR thing the less headaches that you have so that benefits you so giving more options to prospective employees or you know existing employees to retain them is a good thing and they can make that choice but you know the HRA is what I found is for very small companies you know you've got five employees or six employees and you're like we don't have a health insurance plan and we don't you know pay for health insurance or whatever you can at least open up that HRA plan you can have one where your employees can contribute to it or you can at least have an HRA plan where you put something away so okay we can't afford to have a health insurance plan for our employees but we can't afford to put X dollar away per employee every year you know every month so that they can go out and buy health insurance it gives you an answer you know so when you're you when you're when you're interviewing a prospective employee and they're like well what health benefits that you have you can say to them oh we have an HRA plan and we contribute $100 a month per employee or 200 a month whatever it is that may not be as great as if you work for Microsoft but it's still a good answer and it's something it's it's part of your overall benefits package and it's certainly benit better than saying sorry dude we don't offer any health insurance at all at least it's something and and also you you know exactly what it's going to cost it's not like a all over the place it's it's also another great point because you know every client I know you know when when their renewal time comes around it's like opening that envelope they have to have a bottle of Jack Daniels right next to them you know because you don't know what the increase is going to be in their premiums now that's not you it's not the case you you decide what you want it to be I think the biggest to me I think the biggest challenge that I've seeing with uh with hras is that the health exchanges are so complex you know I mean they're the there it's you it's like you have to have like a degree in in physics to to figure out what health care plan is best for you so I know a lot of companies um hire outside Consultants to help um I feature in the piece that I wrote this is on entrepreneur.com I I spoke to the company called take command um they're one of these companies that uh do this kind of stuff they advise and they help employees navigate the health plan Marketplace and choose what's best for them for a fee obviously but at least it makes it easier for these guys you know to get their to get their health insurance and there's other companies out there that do that um because figuring out the health exchanges is not for the faints of heart you know and why a business owner should have to do that I will never understand it's unbelievable I totally agree it is unbelievable last topic uh you recently wrote about a young man with a lemonade stand um you you promised us you were going to write this um and I was eager to to see it I'm curious did did you learn anything from this story or What attracted you to it yeah there's a story behind the story so first of all it's a water ice business I think you're right you're right I'm sorry told you I might have told you it was a lemonade stand last week so of course I was wrong it's a water ice business okay so and I this for the Philly inquire so uh you know as a good as a good journalist um I went and I met with Chase Anderson he's eight years old and his mom in a park in Philadelphia and um you know we we talked about his business and let me tell you the story behind the story okay first of all the kid's awesome he's been doing it since he's 6 years old the mom is awesome she's like an employee at like American Airlines at the Philly Airport she's got the kids back she's all over all over him she's really great and um this business is like has been blown up um the kid makes like these specialty homemade water Rices he's come up with his own flavors mango and watermelon and God knows what and they make it at home they've had 600 bookings this year alone Lauren and I'm like I don't I was trying to do the looking for a water ice you mean yeah I'm like let me do this there's there's like there's only like 350 days right like I'm like where's what's not working here I mean I'm not that great an accountant but I can at least do that math and um you they sometimes have three or four events um in a day U as many as 10 um they go to firehouses uh birthday parties school events like you know other you know organizational events business events is is is Chase still in school so yeah he is still in school but they go and they they deliver the water ice and then like the mom hangs around or chase hangs around to like dle it out or not you know so a booking can be where they like just drop off the water ice and leave uh it's packed in dry ice and then people do it or it could be that they're actually serving out the water ice it really kind of depends on the booking but according to her they're they're like they've been super busy they've been crushing it which is great okay so good for them um the whole point of this C in the Philly inquire Lauren I don't write I cover small businesses every week but I don't do like profile stuff I like to it's an advice column you know I like to take like an issue like hras and interview some local people about you know some advice for business owners my angle for this business for this column was what advice does Chase's mom have for other you know moms or dads that have young entrepreneurs like how to run their businesses and she said all the right things you know you got to support them they got to be entrepreneurial you know help them manage their money make sure they don't get stressed out or overw worded and balanced it was all great stuff but I was very concerned Lauren because I'm asking her did you get like this is Philly okay you can't get any more like regulated than Philadelphia okay I mean our city shut down restaurants for like months on end when people had the sniffles you know but okay that that was over Co Jean But but so so we're in this you know it's a highly regulatory thing and I'm like asking her like hey Briana you know did you get permits and licenses and are you doing you know whatever filing the text oh yeah oh yeah oh yeah I've got all that I've got all that and I'm like oh geez so I was kind of concerned because I'm like I called up my editor and I'm like you know I don't want to write this story about this kid and then like the next day like a SWAT team is going to come and like cart this kid off to jail and his mom you know or find them a half a million dollars cuz they're like breaking some laws here you know what I mean and um she told told me well she told me you know to obviously to talk to the city which I had planned to do so I talked to the Deputy Commissioner of Commerce in the city of Philadelphia who was actually aware of Chase because he was featured on a TV thing a few months ago and um she told me that about a law I wasn't even aware of that was passed in 2021 in Pennsylvania and many states have similar laws New Jersey has one too um that Exempted minor businesses businesses run by miners that are grossing less than 5,000 uh from any permits or licenses you know I mean this kid's making water ice in his kitchen you know Lauren I mean I don't know what your kitchen looks like but you know right so but apparently you know he's under that exemption according to his mom so he's fine and it was a big I was relieved and that's what you know so I wrote the article and I so so far as I know the kids walk in the streets free and clear um but it it is something to know if you've got a kid that wants to run a small business check with your you know Department of Commerce or Google around because um if you are concerned about these permits and licenses um because you know we always hear about these lemonade stands being shut down you know whatever um it's there's been a trend around the country of states and cities passing laws that allow miners to run little businesses um without them getting in trouble with compliance but you you definitely want to check on that um I did the checking on behalf of the mother after the fact she how do these laws determine if the business is really run by the minor or is actually run by the parents okay so so Lauren I asked I had a bunch of questions for this you know Deputy you know commissioner and she basically said well is this on the record or off the Record because she's like you know because I asked that same question I also asked her about like how do you know this $5,000 I mean this kid's got like 600 bookings I don't know maybe got cash business right yeah it's cash business how do you like you know whatever and what if they start their business saying it's under 5,000 and then Midway through they're grossing 10,000 and she's like well is this on the record or all the I think you just gotta be you know cognizant of the fact that if you you know if you don't think that your kid is really running this business as a minor and if you really think that you're over that 5,000 you you really want to try and be in compliance with the permits and the laws the other thing I also to say is um uh you know again the woman I spoke to from his name is Karen faly she was great she um very much you know you think about the city of Philadelphia or any local you know like oh my God I don't want to talk to these bureaucrats they're going to kill me she was great and she's like you got to call us and we will walk you through what you need to do we're not going to bite you you know we want to help you we think this a great story K little kid running his business or any startup business in our city so you know be proactive and reach out to us as a business owner um um you know Departments of Commerce and cities and states they're there to help business they're Commerce departments so you know they're on your side they really are and she was right she was right yeah I the thing I would worry about a little bit especially with an eight-year-old is is this thing still a a joy to the 8-year-old or is it becoming a burden because it's just too much did did you get a sense of that at all is he pretty happy kid was into it you know he was really good and you know and his mom's defense I mean I interviewed like in the afternoon he had just gotten back from summer camp he was he goes every morning to summer camp and then in the afternoons he's selling water ice and um kid seems pretty happy you know so it's you know if anybody Listen to Here is anywhere near Philly they do Philly Jersey in Atlanta for some reason but anyway it's called da cooler boys Bo YZ and uh it's him he gave a shout out to he has a little brother who's like got four years old five years old you know kind of helps him out it's cool it you know good for him good for him anything you're working on that we should look for this week yeah I'm going to write a couple articles on AI this week uh three actually wow and I just finished a piece you'll see coming out about are you having AI write it for you is that why you're doing three yeah I was I made a joke about that too I just have chat GPT write these things but uh I'm going to do in the inquire and entrepreneur and actually in for Forbes this week I spent a lot of time and wrote a piece about Google uh Bard and duet um what's out and what's coming and how that's going to impact you know our businesses you wrote about Microsoft's co-pilot this is Google's version right exactly and so that's how I'm digging into this I'm like you know like you know how does this stuff affect small businesses you know how does it affect my business so if you're a Microsoft business then Microsoft co-pilot you need to be well aware you and I hopefully will talk about Google bard and duet sure because there's many people listening to us that are Google businesses you know and they they need to know that this stuff is coming so they can leverage it marks is a CPA who writes weekly on small business for the guardian the hill the Philadelphia inquire the Washington Times the Chicago Daily Herald Forbes an entrepreneur you can also hear him on ABC radio's ey on the world with John Bachelor Jean hosts two small business podcasts with paychecks Corporation and the Hartford this episode was brought to you by the great game of business which helps businesses use an open book management system to help build healthier companies you can learn more atre game.com thank you Jean always great to speak with you Lauren we'll talk to you next week my pleasure jeene have a great week everyone