Source: https://tinyurl.com/yxwcmw6w
Thursday, October 22, 2020
Tuesday, October 20, 2020
Tuesday, October 13, 2020
COVID-19 Is Having an Immediate and Alarming Impact on Latino-Owned Businesses
Source: https://tinyurl.com/yyn8pfdj
Written by: Margaret SteenIn a Stanford survey, nearly two-thirds say they will be out of business in six months if current trends continue.
Maria Palacio lost 97% of her coffee company’s business over a 24-hour period in March, just a few days after the World Health Organization declared COVID-19 a pandemic. Progeny Coffee delivers sustainably farmed coffee to workplaces in Silicon Valley. Business had been slowing as the health crisis mounted and tech companies encouraged employees to work from home. Then authorities in the San Francisco Bay Area issued orders for residents to shelter in place, emptying the offices of Palacio’s customers.
Two weeks after the WHO declaration, the Stanford Latino Entrepreneurship Initiative administered a survey on the effects of the crisis to 224 mostly scaled ($1 million-plus revenue) Latino-owned businesses in the United States. The findings were alarming: 86% of respondents reported immediate negative effects ranging from project delays to complete closure. And almost two-thirds said they would not be able to sustain their businesses for more than six months if the restrictions were kept in place. Detailed results are reported in “The Impact of COVID-19 on Latino-Owned Businesses.”
After Congress responded to the unfolding economic disaster in late March with the Paycheck Protection Program (PPP), managed by the Small Business Administration, SLEI conducted a second survey focused on government assistance to businesses.
Instant Impact
Palacio, cofounder and CEO of Progeny Coffee in Berkeley, California, is an example of the 86% of respondents who felt immediate negative effects of COVID-19.
In addition to losing local customers, the company couldn’t ship coffee from Colombia to European customers because of a shutdown in Colombia. And Palacio had to postpone plans to launch a new beverage: The drink could no longer be bottled in Colombia, and the U.S. supermarket chain that had agreed to buy it was too focused on supplying essentials to introduce a new product.
“Everything that we had really positive in our company shut down,” Palacio says. “It all happened at the same time.”
Not every survey respondent said business was down. For 3% — those who sell cleaning supplies, for example — the pandemic has had positive effects. “Our business has exploded,” reported one maker of hand sanitizer and disinfectants.
The remaining 11% of respondents reported business as usual. Some were deemed essential businesses and continued operations. Others have been able to shift their employees to telework. These respondents noted some additional expenses related to employees working from home, and some offered additional sick leave. Many are also anticipating additional downstream effects.
Ongoing Challenges
One-quarter of the scaled companies and one-third of the unscaled companies in the survey said their employees cannot work remotely, putting them under even more pressure.
Alan Koenig is the chief financial officer of Prosein, a 40-year-old family business in Miami that sells flooring to developers, contractors, and architects. Although the business was not shut down — construction was considered an essential industry — traffic in the company’s showrooms declined by over 90% in April. That same month, the company’s sales were down 70% compared with the beginning of the year. “People are not coming to a showroom,” Koenig says.
Will customers have the money to pay?
One survey respondent who had not seen an immediate impact on business was worried nonetheless: One of their customers has already changed to paying in 60 days rather than 30, while another needs more time to figure out how to pay.
Prospects for future business are even more concerning. One respondent who works in the real estate industry is worried that if real estate sales fall, business will drop off as well. And Koenig notes that it’s not clear how many people will embark on a home remodel during a recession.
Will supply chains hold up?
Even if demand for goods resumes once businesses reopen in the U.S., global supply chains are being disrupted. For example, Koenig is seeing delayed shipments from Italy and Spain.
In Colombia, Palacio says the coffee farmers she works with are having trouble harvesting and shipping their crops due to the pandemic. “There’s no way right now to get the coffee all the way to the port to ship it out for some of our farmers,” she explains. Coffee is typically harvested just once or twice a year, so losing a crop could have an outsize effect on the supply.
Weathering the Storm
The businesses that have been hardest hit by the pandemic don’t have a lot of time to rebound. Almost two-thirds of respondents — 65% — said they can continue operating for up to six months under the current restrictions. This includes 71% of unscaled firms and 59% of scaled firms.
Almost half of respondents — 46% — said they would run out of money in three months or less. “We’ve called our landlord and all of our vendors to request forbearance on all of our monthly bills,” one respondent said.
“In terms of liquidity, there’s a real sense of urgency to get cash to these businesses,” says Marlene Orozco, lead research analyst with SLEI.
For the first round of PPP funding approved by Congress, aid was distributed primarily through banking institutions — a disadvantage for many Latino-owned businesses, which are less likely to be connected to large financial institutions, Orozco says.
At the time of SLEI’s follow-up survey in late April, 31% of respondents had applied for aid and been approved, and 55% had applied for aid and were still awaiting a response.
Koenig is among those who’ve been approved for government aid: both a PPP loan and an Economic Injury Disaster Loan from the Small Business Administration. With these in place, he estimates that he can keep his 15-employee business afloat for six months. “But we need to come up with new ideas to make the business profitable again,” he says.
Palacio also sought help to keep her business going. She applied for PPP loans from several lenders and was approved by a small lender in Minneapolis. She also got an Economic Injury Disaster Loan and a loan from ICA, a Community Development Financial Institution in Oakland. And Intuit, one of her customers, started a GoFundMe campaign to help her business and the Colombian farmers who produce the coffee.
“We reacted pretty fast and applied to many different places,” Palacio says.
Almost a quarter of respondents (23%), mostly in the professional and business services industry, said they could keep their businesses going for more than a year under current conditions.
Adapting to the New Reality
Business owners realize they will need to be nimble to survive.
“We are assuming that this is our new normal and we need to make it work,” Palacio says. It’s not clear how long until Silicon Valley office buildings fill with employees again, so she is shifting her business to sell coffee direct to consumers. “If we’re able to figure out a niche market and create subscriptions, that will give us more runway.”
About half of survey respondents (49%) had already reduced their staff, employees’ hours, or pay, with more than half saying they expect they will need to take this step in the next three months. Scaled firms were more likely to have implemented staff cuts (56% had, compared with 40% of unscaled firms). Unscaled firms were more likely to have adjusted their pricing (27% vs. 23%).
Koenig, too, is looking for ways to adapt his business — perhaps even after the crisis is over. The company is trying to improve its cash flow by charging customers for products in full up-front rather than letting them pay only 50% until they need them. They are also sending tile samples to customers and exploring virtual reality as a way to show customers how the tiles will look. Strategies like these might ultimately replace the company’s physical showrooms.
“We have big showrooms that maybe are no longer needed,” Koenig says. “We don’t know if people are going to go out and look for flooring. We need to take our business to our customers’ homes.”
After Congress responded to the unfolding economic disaster in late March with the Paycheck Protection Program (PPP), managed by the Small Business Administration, SLEI conducted a second survey focused on government assistance to businesses.
Instant Impact
Palacio, cofounder and CEO of Progeny Coffee in Berkeley, California, is an example of the 86% of respondents who felt immediate negative effects of COVID-19.
In addition to losing local customers, the company couldn’t ship coffee from Colombia to European customers because of a shutdown in Colombia. And Palacio had to postpone plans to launch a new beverage: The drink could no longer be bottled in Colombia, and the U.S. supermarket chain that had agreed to buy it was too focused on supplying essentials to introduce a new product.
“Everything that we had really positive in our company shut down,” Palacio says. “It all happened at the same time.”
Not every survey respondent said business was down. For 3% — those who sell cleaning supplies, for example — the pandemic has had positive effects. “Our business has exploded,” reported one maker of hand sanitizer and disinfectants.
The remaining 11% of respondents reported business as usual. Some were deemed essential businesses and continued operations. Others have been able to shift their employees to telework. These respondents noted some additional expenses related to employees working from home, and some offered additional sick leave. Many are also anticipating additional downstream effects.
Ongoing Challenges
One-quarter of the scaled companies and one-third of the unscaled companies in the survey said their employees cannot work remotely, putting them under even more pressure.
Alan Koenig is the chief financial officer of Prosein, a 40-year-old family business in Miami that sells flooring to developers, contractors, and architects. Although the business was not shut down — construction was considered an essential industry — traffic in the company’s showrooms declined by over 90% in April. That same month, the company’s sales were down 70% compared with the beginning of the year. “People are not coming to a showroom,” Koenig says.
Will customers have the money to pay?
One survey respondent who had not seen an immediate impact on business was worried nonetheless: One of their customers has already changed to paying in 60 days rather than 30, while another needs more time to figure out how to pay.
Prospects for future business are even more concerning. One respondent who works in the real estate industry is worried that if real estate sales fall, business will drop off as well. And Koenig notes that it’s not clear how many people will embark on a home remodel during a recession.
Will supply chains hold up?
Even if demand for goods resumes once businesses reopen in the U.S., global supply chains are being disrupted. For example, Koenig is seeing delayed shipments from Italy and Spain.
In Colombia, Palacio says the coffee farmers she works with are having trouble harvesting and shipping their crops due to the pandemic. “There’s no way right now to get the coffee all the way to the port to ship it out for some of our farmers,” she explains. Coffee is typically harvested just once or twice a year, so losing a crop could have an outsize effect on the supply.
Weathering the Storm
The businesses that have been hardest hit by the pandemic don’t have a lot of time to rebound. Almost two-thirds of respondents — 65% — said they can continue operating for up to six months under the current restrictions. This includes 71% of unscaled firms and 59% of scaled firms.
Almost half of respondents — 46% — said they would run out of money in three months or less. “We’ve called our landlord and all of our vendors to request forbearance on all of our monthly bills,” one respondent said.
“In terms of liquidity, there’s a real sense of urgency to get cash to these businesses,” says Marlene Orozco, lead research analyst with SLEI.
For the first round of PPP funding approved by Congress, aid was distributed primarily through banking institutions — a disadvantage for many Latino-owned businesses, which are less likely to be connected to large financial institutions, Orozco says.
At the time of SLEI’s follow-up survey in late April, 31% of respondents had applied for aid and been approved, and 55% had applied for aid and were still awaiting a response.
Koenig is among those who’ve been approved for government aid: both a PPP loan and an Economic Injury Disaster Loan from the Small Business Administration. With these in place, he estimates that he can keep his 15-employee business afloat for six months. “But we need to come up with new ideas to make the business profitable again,” he says.
Palacio also sought help to keep her business going. She applied for PPP loans from several lenders and was approved by a small lender in Minneapolis. She also got an Economic Injury Disaster Loan and a loan from ICA, a Community Development Financial Institution in Oakland. And Intuit, one of her customers, started a GoFundMe campaign to help her business and the Colombian farmers who produce the coffee.
“We reacted pretty fast and applied to many different places,” Palacio says.
Almost a quarter of respondents (23%), mostly in the professional and business services industry, said they could keep their businesses going for more than a year under current conditions.
Adapting to the New Reality
Business owners realize they will need to be nimble to survive.
“We are assuming that this is our new normal and we need to make it work,” Palacio says. It’s not clear how long until Silicon Valley office buildings fill with employees again, so she is shifting her business to sell coffee direct to consumers. “If we’re able to figure out a niche market and create subscriptions, that will give us more runway.”
About half of survey respondents (49%) had already reduced their staff, employees’ hours, or pay, with more than half saying they expect they will need to take this step in the next three months. Scaled firms were more likely to have implemented staff cuts (56% had, compared with 40% of unscaled firms). Unscaled firms were more likely to have adjusted their pricing (27% vs. 23%).
Koenig, too, is looking for ways to adapt his business — perhaps even after the crisis is over. The company is trying to improve its cash flow by charging customers for products in full up-front rather than letting them pay only 50% until they need them. They are also sending tile samples to customers and exploring virtual reality as a way to show customers how the tiles will look. Strategies like these might ultimately replace the company’s physical showrooms.
“We have big showrooms that maybe are no longer needed,” Koenig says. “We don’t know if people are going to go out and look for flooring. We need to take our business to our customers’ homes.”
Wednesday, October 7, 2020
Monday, October 5, 2020
Why Right Now Is the Best Time Ever to Start a Business
“I am really concerned about starting a new company right now. I think the world is too unstable and it’s just too risky,” a very close friend of mine was relaying to me the other day. “I have a job. I don’t want to voluntarily quit, have my company fail and then struggle to find something on the other side.”
“You need to look at things differently,” I responded. “You need to look at the extraordinary opportunities and the lower barriers to entry for starting a company right now. You can have access to people and talent that you would not have had previously.”
“Yes, I know, but I am still worried," my friend immediately responded. “I guess I want to have my cake and eat it.”
As technology futurist Kevin Kelly would say, right now is the best time to start a new business. Unfortunately, many potential founders, like my friend, are fearful. This is not anecdotal. Between 1978 and 2012, the number of new companies declined by nearly 44 percent, according to the Kauffman Foundation.
Paradoxically, recessions and unstable periods present the best opportunities to start new companies. During the 2008 Financial Crisis, billion dollar startups like Uber, Airbnb, and many others were founded partly as a response to changing market dynamics.
The present day is no exception, offering once-in-a-lifetime opportunities and unfair advantages to potential entrepreneurs. Among these are increased access to people and talent at lower and negotiable costs, and an environment in which consumers are more willing to try new products and services — often out of necessity.
Increased Access to People and Talent
During boom periods, engineering, design, product and sales talent can be incredibly challenging to recruit and eventually close. Not only is the talent scarce on the market, but the best ones often command fees that can quickly bankrupt a nascent startup if they do not show value from their hires quickly.
Now, many established companies and even startups have laid off talent due to decreased marketplace demand. And due to larger market dynamics, overall salaries have also declined for once in-demand positions.
This has opened up people and talent-recruiting opportunities for entrepreneurs; with the ability to access talent that is critical to early stage growth that would otherwise be lured by larger salaries or more stable opportunities. Entrepreneurs can also rely more on alternative compensation schemes like equity to lure potential hires as the cash compensation and bonuses become more scarce.
During boom periods, engineering, design, product and sales talent can be incredibly challenging to recruit and eventually close. Not only is the talent scarce on the market, but the best ones often command fees that can quickly bankrupt a nascent startup if they do not show value from their hires quickly.
Now, many established companies and even startups have laid off talent due to decreased marketplace demand. And due to larger market dynamics, overall salaries have also declined for once in-demand positions.
This has opened up people and talent-recruiting opportunities for entrepreneurs; with the ability to access talent that is critical to early stage growth that would otherwise be lured by larger salaries or more stable opportunities. Entrepreneurs can also rely more on alternative compensation schemes like equity to lure potential hires as the cash compensation and bonuses become more scarce.
Time to Negotiate “Fixed” Costs
Although the fixed costs to start a new company (i.e. servers, real estate, etc.) have come down considerably over the past 20 years, they are still relatively high for early stage entrepreneurs. For real estate leases, SaaS and other capital and operating expenditures, entrepreneurs are often faced with high initial upfront expenses before their business ever generates its first spate of revenue.
In leaner and meaner times, real estate costs often decline considerably and landlords are more than willing to provide attractive deal terms to close a deal, including office renovations and more flexible lease terms. Other cost centers like SaaS and independent-contracting services may be more open to negotiation and flexible business terms as well. All of this decreases the cost of starting a business and allows entrepreneurs to deploy precious capital resources into hiring and product rather than fee based services. “Trysumers”
A foundational challenge to starting and growing a new business is acquiring customers. An expensive proposition, this will often involve persuading consumers to try a new product option or category or switch between brands. Many entrepreneurs often fail at this process, even when equipped with a significant capital war chest.
In the current environment, customer-acquisition costs may decrease considerably. First, due to economic necessity and changes in routine, consumers may be more willing to try new products and services or even switch brands from their normal selection. More importantly, as new behaviors and routines come to the fore, consumers may adopt different products and services. This provides ample new opportunities for acquisition.
Leaner and meaner times present a host of macro-economic challenges. Somewhat paradoxically, but also logically, this makes right now the best time to start a new business. Chiefly, this is because of greater access to people and talent, negotiable fees and a greater willingness amongst consumers to try new products — sometimes out of necessity.
Although the fixed costs to start a new company (i.e. servers, real estate, etc.) have come down considerably over the past 20 years, they are still relatively high for early stage entrepreneurs. For real estate leases, SaaS and other capital and operating expenditures, entrepreneurs are often faced with high initial upfront expenses before their business ever generates its first spate of revenue.
In leaner and meaner times, real estate costs often decline considerably and landlords are more than willing to provide attractive deal terms to close a deal, including office renovations and more flexible lease terms. Other cost centers like SaaS and independent-contracting services may be more open to negotiation and flexible business terms as well. All of this decreases the cost of starting a business and allows entrepreneurs to deploy precious capital resources into hiring and product rather than fee based services. “Trysumers”
A foundational challenge to starting and growing a new business is acquiring customers. An expensive proposition, this will often involve persuading consumers to try a new product option or category or switch between brands. Many entrepreneurs often fail at this process, even when equipped with a significant capital war chest.
In the current environment, customer-acquisition costs may decrease considerably. First, due to economic necessity and changes in routine, consumers may be more willing to try new products and services or even switch brands from their normal selection. More importantly, as new behaviors and routines come to the fore, consumers may adopt different products and services. This provides ample new opportunities for acquisition.
Leaner and meaner times present a host of macro-economic challenges. Somewhat paradoxically, but also logically, this makes right now the best time to start a new business. Chiefly, this is because of greater access to people and talent, negotiable fees and a greater willingness amongst consumers to try new products — sometimes out of necessity.
Thursday, October 1, 2020
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