Dashboard: Is America Really Experiencing a Startup Boom?

[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 genan marks Jean it's great to have you back welcome great to be back Lauren in uh back here in Philadelphia so I spent two weeks in Sweden had a great time we'll talk about that sometime in the future when I start writing about it I look forward to that uh Jean you wrote a piece recently for the hill in which you asked the question is America really experiencing a startup boom what did you include well the the answer is yeah America really is experiencing a startup boom there is no question about it um over the past few years since 2020 uh there have been millions of startups and in fact President Biden uh recently announced there there are 14.6 million applications filed to start businesses uh under his administration and that is that is no lie um my question is is is why you know like what what is going on with these startups and why uh you know you know you is is this really uh tangible startups I mean is this what does this mean and and when I dug into the numbers Lauren I mean I I have to say that there are certain things that we need to it's like everything else you know things are more complex than they seem okay yes there has been a huge amount of startups that is that that is certainly true however there have been a huge amount of remote workers since covid and a lot of these remote workers and people that are working working from home from their companies um in my opinion and there's no data to back this up so this is anecdotal but um many of them because I know them um have have you started to realize their dream of starting their own little business maybe an Etsy shop or selling something online or uh doing some type of a side gig and I I think corporate employees because of covid uh contribute a lot to this you know to this startup boom you know and then there's other but then there's other factors that I think President Biden may not want to be advertising when he's saying there's a lot of people that started up businesses for you know for starters I mean in some Industries like real estate and Technology and Manufacturing there have been a lot of corporate layoffs um in addition to that there have been you know much higher prices almost 20% higher for core prices in grocery and rents and um you know in housing than than they were when President Biden took office and that's created a lot of need for cash from people and because of that a lot of people have been driving Ubers and selling stuff on Etsy and doing stuff that are startup related because that is something that they feel that they need you know to do um I I think the question you're asking there is are these businesses being started because people have no other choice and they're forced to confront a situation or are they being started because they have an idea something they want to do and they're venturing off into entrepreneurship well you mentioned venturing you know I mean the startups that are are among these 14.6 million these are really for the most part Freelancers independent people small Proprietors which is fine as you said you're kind of guessing on that obviously a huge proportion a lot of them are but yeah I saw a figure somewhere let you know uh the Harvard Business Review uh last week ran a story about this yep same basic topic and um you know it made the point that especially early in covid there was real reason to assume that a lot of this is exactly what you said people who lost their jobs or were subject to a shutdown and had either had the time or no choice but to try to find another way to to to make a living but you know the econom is pretty good right now and you still have a lot of people doing this and they the hbr story said that in in October most recent October the IRS received 400 73,000 applications to start a new business and uh of those 154,000 so you know more than a third uh were from the subset of applications that are more likely to translate into new employer Enterprises so not somebody doing a an Uber gig um you know given the strength of the economy that seems like real entrepreneurship and a and a an interesting sea change Maybe or maybe not I mean really when you look at the 33 million businesses that are in you know in the United States you know you know four million of them you know what I mean 12% of them um you know or or actually 27 million of the 33 million I have this in my column are had no employees at all you know so you're looking at like but those are that's existing businesses that's not just looking at the start oh I I agree with that that is existing businesses but you know without having any other data to lean on doesn't that sort of I just gave you some data yeah but what repeat again what the data was in the Harvard Business what what did they say they had the propensity to hire they just looked at October 2023 right and their point was two things one that the number of applications which they had 473,000 was up dramatically over October 2019 so before Co but also that a a sizable percentage more than a third 154,000 came from businesses that they assessed as being employer Enterprises and those are the ones thank you so they say that so they assessed that more than a third of these startups are going to be employer Enterprises when I telling you that 90% of existing businesses do not have any employers employees so I I don't know I don't know what leap they're taking to say that gee a third of all of these new startups s are going to have employees when the historical data shows that of the 33 million businesses that are out there 80 to 90% of them don't have any employees at all so you know again I know that they're using some definition of have the propensity to hire employees but I just I I would have to understand a little bit more how they're making that determination when all of the existing businesses in the country you know the the the grand grand majority of them do not have any employees at all why would we make the assumption that suddenly all of these these startups a third of them are going to have employees it just doesn't make sense to me I wonder about this I mean you mentioned the the corporate layoff aspect to this and that's that's a different world today than it's ever been in the past and I mean think you know it's kind of interesting to think about that we've had a lot of layoffs just in the last week or two um and certainly there were a lot of layoffs last year especially among tech companies and yet unemployment is as low as it's been in 50 years so um there there's some conflicting information here both things are true but think about those like the tech employees who are laid off those are people who have you know they're going to be okay they have real skills and if they go off and start a business I I suspect the odds that it becomes an employer business are much greater uh than it ever was before and maybe that's the difference because there are things you can do today one person working out of a bed room that you couldn't do 10 years ago maybe uh but then again you know I don't know if you can just make the assumption that just because somebody is good at programming that they're going to be good at starting up and running a business and you know I mean let's also look at this you know this much there are new business applications which in you know what I'm saying are mostly Independents and Freelancers and then there are businesses that are being funded uh with private capital and Venture Capital funding that are really going to be the ones obviously to to to have the chance to grow the most that funding has fell in a half since 2022 many many businesses are are not being started um and these are the businesses you know to contradict the Harvard Business Review I would think would be the ones have more of a propensity uh to hire people and be the next Airbnb or Uber um they're not getting the funding right now um to to to grow so I guess I guess well you know that's a really interesting point because I mean you know if you go back to the 2010s when and we were all excited about all the unicorns that were uh coming out uh and Venture Capital was flowing freely the the startup rates were were much lower um so you know it makes me wonder a little bit and it gets to the question of do you really have to be venture-backed to grow to be a growth business that actually hires people and I don't know what the numbers show on that but but I'm I'm reluctant to make that assumption yeah it's tough to tell I guess the takeaway is that you know I just I I don't believe based on the historical numbers of existing businesses that all of these new startups are are actually going to be employers um from what I say from what I certainly not all of them yeah that's true but I mean I'm I'm G to you know make the you know make the determination that anywhere from 80 to 90% of them will never have an employee because 80 to 90% of existing businesses right now don't have any employees at all and again I don't want to throw cold water on the fact that people are starting up businesses that's awesome that they're doing that um but I I do feel that a lot of people are doing it as either side gigs or as a need to make ends meet not necessarily because they're building organizations are going to be sustainable going forward I guess time will tell keep it why one thing you know the business model of a venture capital firm is they hope that maybe one out of 10 or 12 Investments actually survives and becomes a thriving or actually more than survives one out of 10 or 12 becomes a big success and the rest don't make it um so in terms of percentages that's that's not a huge number uh I'd like to think that there are a lot of other companies hiring employees without going the Venture Capital route but I think that's true and I would like to think the same thing but also you know to to counter is just that these Venture Capital companies are absolutely right I mean you know 5% of their their Investments actually succeed but those companies that they invest in do hire employees and then most of them fail but then we watch them on Netflix as we see the the story of what went wrong very true all right next topic um I highlighted a piece in Business Insider uh last week um about uh the operator of four fast food restaurants in California who is already making cuts and getting nervous and making changes um based on the fact that the minimum wage for fast food workers is going to go up in April um you didn't write this piece Jean but I think you could have um the fast the the minimum wage for fast food workers just fast food workers is going to be $20 an hour starting in April right it's hard not to feel for this guy I suspect you you do as well yeah I mean I have mixed feelings about minimum wage l I really do um no you don't no I do I really do and I'll tell you the reason why first of all I no one knows I I mean I because I've written about this a dozen times and I've researched this a dozen times and I have found more conflicting studies done by universities and academic think tanks about the effect of a minimum wage increase than any other issue that i' that I've written about and here covers small business I can give you a bunch of studies that say that uh it increases employees wages they go it's good for the economy um it keeps them you know uh employed it gives them motivation to come to work uh employers don't lose employees this way it works out better for everybody and then I can give you conflicting studies that say no whenever this happens uh employers lay people off or they have to cut benefits like this guy uh or or or or or or makes well he doesn't know he's going to have to he he thinks he will have to and he's doing it in advance and he he's doing it because you know he wants to be he doesn't want to be blindsided and that's certainly understandable it's true he runs a fast food restaurant and the fast food restaurant industry obviously they are notorious for um underpaying workers the the issue is is how much Lauren do you want to pay for a Big Mac you know I mean we we were reading that a couple months ago about the $18 Big Macs you know and if you're in fast food and your your minimum wage goes up to 20 bucks an hour and it's across the entire industry so even the guy down the street selling chicken or selling you know Big Macs or whatever they all have got the same wage increases as you do um every you know big corporations are going to raise their prices and I think even smaller franchisers and and you know you know fast food restaurants in California are going to be doing the same thing now if you raise the price of a hamburger from you know $4 to $5 is that going to have a big impact on your sales um and I I don't think it is now if you have to raise your price of hamburgers from $4 to $25 that makes a big difference you know and I I think that's what it comes down to with this minimum wage there is this Tipping Point that you can raise your prices to a certain level to cover your because that's really I mean yeah you can cut costs and you can invest in more technology and all that which all sounds great but let me tell you something most of the people that I know that are running businesses trust me this guy he's cut his costs to the level he can cut his costs I mean you don't think he's looking at what every dollar that's going out of this place I'm sure you're right well but let me ask you this here's what I find interesting are you familiar with In-N-Out Burger yeah of course there are a huge change they're they're beloved they're they've got a cult following they're growing and expanding and they do things differently than most fast food uh companies they they've never franchised they've never gone public they tend to pay both their Frontline workers and their managers a lot more than others uh in the industry and and and here's what I think about and they're based in California so is this new $20 minimum wage going to help them or hurt them I I suspect it's possible it's going to help them because it means that all their competitors are going to have to pay more and their prices may look better in comparison so I'll take the countering view and that I think it might hurt them and the reason why is this their reputation is even as a fast food restaurant is that they they're sort of like um uh oh my God now I'm forgetting the name of the uh the famous um um food store chain the grocery chain they they overpay they pay their employees pretty well more than than the industry averages for uh you know for the workers that they have um and they provideed great product a cult like product people just love it they come from out of States absolutely to have their products so they can charge a little bit more for their products and they can pay that much more and the benefit that they've always gotten is that they can attract a better level of employee because they're paying that much more now if wages are coming up and bringing those hourly wages more on a parody I think it might make it tougher for In-N-Out Burger now because they don't have that differentiator going on they're they're paying their employees the same as the guy down the streets because it's been regulated that way so I'm not so sure if it does help them if they are or maybe they they bump it up a little bit here's one other aspect of it I'd love you to explain this to me somehow this law applies to fast food workers but not to fast casual restaurant workers so that story I quoted from is predicting that lots of people who will work at Panera are suddenly going to be looking for jobs at places like McDonald's yeah does that make sense in any Universe of course not um but the reason why it did is because of the power of their lobbying in the fast food industry in California I forget the name of the guy that I interviewed for uh for the paychecks podcast that I do um he slips my mind right now but he you know he's you know the the president of the fast food uh you know um retailers or restaurant tours Association in California and um they were they were doing everything they could they they realized that it was going to be a losing battle uh to fight this minimum wage increase and all their goal was was to try and chip away at it in whatever place that they could and uh they found a little place to do that with by saying by excluding you know fast casual restaurants so that's the and you're right it makes absolutely no sense but it's just a little bit of a political win for that organization so they can say to their members listen we we did our best and this is what we got all right speaking of Regulation there was a big Supreme Court case that was heard last week um oddly enough it involves Herring fisherman leaving Cape May New Jersey to summarize quickly as best I can and you'll correct me if I get it wrong the the case is really about how the government the federal government regulates and who makes determinations about what can often be ambiguous uh statutes or rules um and the way it currently works and there's a lot of legal precedent for this um is that Congress delegates that responsibility to um to administrative agencies this case is arguing uh was brought by people who are arguing backed by the the Koch brothers uh arguing that Congress doesn't have the right to delegate that and that in fact uh judges should make this determination and there's a lot of hand ringing about this there are a lot of people predicting that the court is likely to rule uh in favor of the plaintiffs the Herring Fishers and that regulation is going to be completely upended and the EPA may go away and who knows what'll happen what do you think so um I'm writing on this now and I'm I'm rounding up a bunch of different cases where small businesses are affected and let let me put this in real life terms because the the the article that you and I shared was uh was in the New York Times and they highlight this fisherman this Herring fisherman off of Kate right so when this when this law was passed um it said that the I don't know the Department of Agriculture whatever the agency that overseas fisherman um they they needed to um they wanted to send observers on the Fisherman's Boat to make sure that the fishermen weren't over fishing in area you know and uh you know from an environmental standpoint maybe it was the EPA and the fisherman uh that was in the article was like hey man that's cool I I get it I think it is good uh they you know we welcome them on the boat you know and even it helps our business because then we can identify places where it's good to fish versus place that it's not they were all about that and that's good but then the government agency that put the Fisher the monitor on the boat then came back and said well you know Congress authorized to do this and um we by interpreting this um we're going to charge you now 700 bucks a day for this monitor to be on the boat and that's when the fisherman the small business owner was like wait wa wait a second the the law says that you know you've got the authority to put the monitor on the boat the law doesn't say anything about charging us for this and then of course the agency is like well the law says that we can interpret it any way we want and we're going to interpret it such that we're going to charge you $700 a day when we put this monitor on the boats that's that's the example you know and but but what happened then so so they sued the fisherman and no before they sued the government changed its mind right what do you mean the government they stop they decided no money was ever collected they didn't charge the lawed that's true but it is still it's not it's not that it's the principle it's the principle and the principle is you know if the if Congress passes a law you know the law is the law does the agency you know have the right to quote unquote interpret that law and then add additional regulations on top of that as part of its interpretation of the law and a lot of these business groups are saying no no no if if they're going to do any inter ation we want to judge to say whether or not this is in compliance with the law they just can't have free will to make their own interpretations because that gives them way too much power and one of the arguments in the Supreme Court made by one of the more liberal uh justices was you know look at AI regulation which is coming down the pike uh do do you want members of Congress uh do you want judges making the final determination of that or do you want people who actually understand AI yeah which is a very very strong case I mean I I totally agree with that the other thing is is that the law does say that the agencies can interpret the law you know it gives them the power to do the interpretation so you know if that's what you're saying is part of the law then okay and the AES can go ahead and interpret it um but right now I I tell you that I mean as we know there's a conservative balance in the Supreme Court and from what I'm reading you know as far as the testimony that was that was being done uh it seems like the the the the justices a majority of the justices were dubious about this um and may very well pull back which basically means that uh like you said at the very beginning of this a lot of these agencies that are making new regulations based on a law aren't going to be able to do that unless a judge you know approves or rules in favor which is going to significantly uh impede their ability to regulate and um you know that may be good that may not be good depending on the situation it's fascinating isn't it it is um there won't be a decision till June um so we're not going to know how this plays out for a while is there anything that particularly concerns you that small business owners should be thinking about no I we we have to wait and this is one of those things where um because we live in such you in the biggest economy of the world Lauren like you can't just say like oh well small businesses should be preparing in this way this this would have such a a giant impact on so many businesses and so many different industries that are overseen by so many different regulatory agencies that you just can't make a blanket statement some businesses might not be affected at all some businesses might be affected a lot um and it's going to depend on the industry and the business itself so um I guess the only thing the only piece of advice I can give is now that we all know that this is out there and the Supreme Court is arguing this or at least heard Arguments for this you probably should be talking to your industry Association to find out what they're doing uh to track you know the progress of this and what the impact will be on on on your specific industry um because this is an on an industry by- industry basis is going to have you know its own specific impact that makes a lot of sense you've already told us that you're you're probably going to write about your uh trip to Sweden and the business owners you met there and you're I think you're going to write about the Supreme Court case anything else we should look for in the coming week so yeah I am going to be writing about that and I want to revisit um getting financing and and environment where interest rates are over 10% for a lot of small businesses so I plan on I plan on writing about that this week as well are you going to look at Banks or um online lenders or the the whole uh panoply I'm starting with banks um because I you know the question is are are they still lending to small businesses at this 10% you know you know when I say 10% by the way the prime rate is eight and a half percent but most businesses are paying a point or two above that uh the question is are are banks still a viable alternative um what are Bankers thinking today uh in this environment when interest rates are this High what what should I know if I want to approach a bank for a financing that's what I'm going to write about I will be looking forward to that Gene marks is a CPA who writes weekly on small business for the guardian the hill the Philadelphia choir the Washington Times the Chicago Daily Herald Forbes an entrepreneur you can also hear I'm on ABC radio's ey on the world with John Bachelor Jean hosts two small business podcasts with paychecks Corporation and the Harford 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 at Great game.com thank you Jean thank you Lauren great to have you back have a great week everyone [Music]