November 28, 2020

You’re the Boss Blog: This Week in Small Business: 6,297 Chinese Restaurants


A weekly roundup of small-business developments.

What’s affecting me, my clients and other small-business owners this week.

Must Reads

Mark Suster shares a favorite story about an entrepreneur. Jason Zweig maintains there are five compelling reasons the United States is a hot emerging market.

The Economy: Increased Tonnage

Growth fails to meet expectations. Orders for durable goods plunged 5.7 percent in March and recent factory data is indicating slowing growth. Charles Hugh-Smith laments the decline of small business. New residential home sales (pdf) increased in March, and there has been positive momentum for architecture billings. But existing home sales fell unexpectedly. Trucking tonnage increased again, but vehicle miles driven hit another post-crisis low. The Federal Reserve Bank of Richmond said manufacturing activity pulled back in its district and Kansas City reported the same in its region (pdf). One study said that small-business owners remained mixed on the state of the economy and their growth outlook. Here’s an updated state of the economy.

Washington: Online Sales Tax

The Senate votes for an online sales tax, but eBay says it is unfair to some small businesses — and it may be too late for others. A small but growing number of American corporations, operating in businesses as diverse as private prisons, billboards and casinos, are making an aggressive move to reduce — or even eliminate — their federal tax bills. A survey from Sage finds small businesses struggling with the complexity of tax regulations and code. Republicans advance a bill to prepare for another debt-ceiling fight. The sequestration budget cuts cause air travel delays and the furlough of 89,000 Internal Revenue Service employees (but the Justice Department is fine). A Chinese mother sues the Federal Reserve over her shrinking cash (this infographic explains how the central banking system really works). The economy will get a boost in July when the government recalculates gross domestic product. The president celebrates young inventors at a White House science fair, and a Pew study says American teenagers are doing better on science tests than the public realizes.

Entrepreneurs: Lessons Learned

Brian Cauble shares 50 lessons he’s learned as an entrepreneur, including: “If you don’t figure out your sales, you will fail.” Rosie Percy says self-employment is on the rise. Saint Louis University’s Center for Entrepreneurship names its first “diamond in the rough” student entrepreneur, and the Western Pennsylvania Small Business Administration names its (reluctant) young entrepreneur of the year. The Wharton Business Plan Competition went to a pair of M.B.A. students who created Zenkars, an online used car dealer that aims to connect wholesale buyers with individual customers, and the grand prize winner of the University of California, Berkeley, Start-up Competition was Resido Medical, which has developed a small wearable device for patients with essential tremor.

Management: Profit by Quitting

Joe Taylor Jr. reports on the secrets of century-old businesses. Lisa J. Jackson suggests celebrating when you hit goals and milestones. Greg Digneo argues that quitting may be the most profitable thing you do this year. A UPS Store owner explains how her business works. Jason Fell explains how to be more like Steve Jobs. A new book says nice companies finish first. A Portland rap legend, Cool Nutz, discusses the secrets of his success. A manufacturing chief executive shares the seven skills of a “lean leader.” Here are 10 quotes that inspire business leaders, and these 27 successful people reveal the things they can’t live without.

Finance: Shake It

Greg Kumparak explains what is needed to raise a million bucks. A Kickstarter project aims to raise $155,000 for a cellphone that can be recharged by shaking it, and another company gets $5.9 million to create a “Kickstarter for people.” Investors sink $30 million into a 3-D printing company. Bryan Goldberg feels some chief executives like to raise money just for the sake of it. Milton Berle’s joke files go up for sale. The 15-year fixed mortgage rate hits a low. American Express Open introduces a tool to help small businesses simplify expense tracking. A financing firm announces an $82 million credit line to finance small businesses. Boston Beer expands its microlending and coaching program. Here is why big corporations are supporting the entrepreneurial ecosystem.

People: 6,297 Chinese Restaurants

A National Public Radio report explains how young adults with autism can thrive in high-tech jobs. These are the worst jobs of 2013. Adriana Gardella’s business group debates whether employees can be rehabilitated (even if they bite people?). Martin Zabell reports on the aftermath of Hurricane Sandy on small businesses, and Sarah Green says much has been learned about communicating with employees in an emergency. Miranda Marquit writes about ways to protect yourself when you fire someone. A study finds more than two-thirds of small-business owners support increasing the federal minimum wage, and a Staples survey reveals that the boss is probably not the most trusted person in your company. After a bad quarter, I.B.M.’s chief executive urges employees to act faster. This guy has eaten in 6,297 Chinese restaurants in the United States and Canada.

Going Green: Electric Cars

Earth Day is celebrated, but the government’s investment in electric cars is not doing well — even in the country’s top 10 green car markets. The world’s “greenest commercial building” opens in Seattle. An energy company introduces a program in Ohio that offers electricity and natural gas to small businesses at a fixed rate. Office Depot reports that 20 percent of small and midsize businesses are greener than last year.

Around the Country: Luring Companies

Rick Perry tries to lure companies from Illinois. A national conference aims to help female veterans accelerate the growth of their small businesses and create jobs. Meanwhile, some women are cashing in on the North Dakota oil boom. Las Vegas taxis bilked passengers out of $15 million last year. Many Americans are breathing cleaner air. Catherine Rampell says New York may be more affordable than you think. A guy rides the tallest bike in Los Angeles, and NASA announces its 2012 small-business industry awards.

Around the World: No Triple Dip

World steel output ticked up during March, but Markos Kaminis is alarmed by the economic data from overseas. German private sector output declined for the first time since November but Britain escaped a triple-dip recession. Chinese stocks slumped the most in weeks as manufacturing slowed. This is how much food $5 buys around the world. A provider of language tools reports that business English proficiency scores have increased strikingly. Adam Dawood thinks Pakistan may be the next frontier for entrepreneurs: “The Internet industry in Pakistan is at an extremely exciting point, and the outlook for local entrepreneurs and venture capitalists is strong in the mid- to long run.” These are five global trading tips for small businesses.

Marketing: No Tricks

Kristin Zaslavsky warns that when sending e-mails not to “trick your clients or potential clients.” Brian Carroll lists four steps for sending e-mails that 85 percent of business-to-business businesses probably are not taking. This is how to use webinars as an e-marketing tool. Ben Bland has a few thoughts on how to write good proposals for tendered projects. Doug Kessler reveals four truths about his content-marketing clients, including “too many content-marketing clients don’t understand their own business.” There are eight types of content every business should consider publishing and five branding mistakes that will cripple your business. Vincenzo Ravina shares seven tips for generating leads at a trade show or conference — without attending. Nicole Crozier explains why marketing is your most important system. Shelly Kramer explains how smartphones can maximize sales, and here is what shoppers really want from mobile. This is why baseball is awesome.

Social Media: Quitting Facebook

A hacked Twitter post sinks the stock market, but new supercomputers could generate warnings of future impending crashes. Here are 25 social media influencers who should not be ignored. Publishing the right post at the right time is one of Brian Michaelson’s four tips to help engage Facebook users. Tina Hamilton explains how a small business can find love on Yelp!, and Harrison Ford refuses to answer questions about “Star Wars.” Sarah McLaughlin gives advice for making your blog post interesting regardless of the subject. A couple of Emerson College students use Facebook to raise $500,000 for a Boston Marathon charity. Ronni Ann Hall is trying to free herself from Facebook.

Technology: Kill the Password

These five Android apps will lessen the stress of the daily commute. These 26 mobile apps will improve your business and networking. These eight must-have apps will run your small business anywhere, and these are the top five software programs for a small business. The “Microsoft Princess” will make an appearance at a conference in May. (Will she make the “start” button magically reappear?). A study from Carbonite finds most small-business owners are not taking full advantage of the cloud. Google joins a PayPal-backed effort to kill the password. These are the new features of the Samsung Galaxy S4. A cool magnetic putty can absorb objects, and laser sensors can automatically fertilize the crops that need it most. This photo app will make your wife or husband look gorgeous. Contactually releases a new version of its powerful relationship-building application. And you all know General Petersen from I.T., right?

Tweet of the Week

@DJRotaryRachel30m: I refuse to celebrate Earth Day until Wind Fire are recognized.

The Week’s Best Quotes

David Wessel shares seven lessons for fixing an economy, including: “A financial crisis is about economics, not morality. There’s a temptation to preach after so many people make so many mistakes: Avoid the sins that created the crisis. Punish the perpetrators. Pursue the economic rectitude of thrift. In the long run, that’s surely right. But in the immediate aftermath of a financial mega-shock, if everyone simultaneously reduces debts, the economy will keep contracting. There’s a strong case for encouraging borrowing and spending in the immediate aftermath of a financial crisis and for temporarily putting aside the fear that doing so might lead people to sin more in the future.”

Charles Kane says that the best place to introduce your start-up is either in Silicon Valley or the Boston area: “They remain the hottest centers of entrepreneurship and venture capital, so you’ll be in an inherently supportive ecosystem where entrepreneurship is as natural as drinking water.”

This Week’s Question: Do you think you understand your own business?

Gene Marks owns the Marks Group, a Bala Cynwyd, Pa., consulting firm that helps clients with customer relationship management. You can follow him on Twitter.

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We Knew They Got Raises. But This?

A preliminary examination of executive pay in 2010, based on data available as of April 1, found that the paychecks for top American executives were growing again, after shrinking during the 2008-9 recession.

But that study, conducted for The New York Times by Equilar, an executive compensation data firm based in Redwood City, Calif., was just an early snapshot, and there were even more riches to come. Some big companies had not yet disclosed their executive compensation.

So Sunday Business asked Equilar to run the numbers again.

Brace yourself.

The final figures show that the median pay for top executives at 200 big companies last year was $10.8 million. That works out to a 23 percent gain from 2009. The earlier study had put the median pay at a none-too-shabby $9.6 million, up 12 percent.

Total C.E.O. pay hasn’t quite returned to its heady, prerecession levels — but it certainly seems headed there. Despite the soft economy, weak home prices and persistently high unemployment, some top executives are already making more than they were before the economy soured.

Pay skyrocketed last year because many companies brought back cash bonuses, says Aaron Boyd, head of research at Equilar. Cash bonuses, as opposed to those awarded in stock options, jumped by an astounding 38 percent, the final numbers show.

Granted, many American corporations did well last year. Profits were up substantially. As a result, many companies are sharing the wealth, at least with their executives. “We’re seeing a lot of that reflected in the pay,” Mr. Boyd says.

And at a time of so much tumult in the media business, it might be surprising that some executives in media and communications were among the most richly rewarded last year.

The preliminary and final studies put Philippe P. Dauman, the chief executive of Viacom, at the top of the list. Mr. Dauman made $84.5 million last year, after signing a new long-term contract that included one-time stock awards.

Leslie Moonves, of the CBS Corporation, got a 32 percent raise and reaped $56.9 million. Michael White of DirecTV was paid $32.9 million, while Brian L. Roberts of the Comcast Corporation and Robert A. Iger of the Walt Disney Company each received pay packages valued at $28 million.

“Media firms seemed to be paying a lot,” said Carol Bowie, head of compensation policy development at ISS Governance, which advises large investors on corporate governance issues like proxy votes. “Media companies in general tend to be high-payers, and they tend to feed off each other.”

Other big payers included oil and commodities companies like Exxon Mobil and a few technology giants like Oracle and I.B.M.

Some of the other highly paid executives on the new list who were not in the April survey are Gregg W. Steinhafel of Target, who had a $23.5 million pay package; Michael E. Szymanczyk of Altria, $20.77 million; and Richard C. Adkerson of Freeport-McMoRan Copper Gold, $35.3 million.

Most ordinary Americans aren’t getting raises anywhere close to those of these chief executives. Many aren’t getting raises at all — or even regular paychecks. Unemployment is still stuck at more than 9 percent.

In some ways, chief executives seem to live in a world apart when it comes to pay. As long as shareholders think that the top brass is doing a good job, executives tend to be well paid, whatever the state of the broader economy. And some corporate boards were probably particularly generous in 2010 after a few relatively lean years for their top executives. In other words, some of this was makeup pay.

“What is of more concern to shareholders is that it looks like C.E.O. pay is recovering faster than company fortunes,” says Paul Hodgson, chief communications officer for GovernanceMetrics International, a ratings and research firm.

According to a report released by GovernanceMetrics in June, the good times for chief executives just keep getting better. Many executives received stock options that were granted in 2008 and 2009, when the stock market was sinking.

Now that the market has recovered from its lows of the financial crisis, many executives are sitting on windfall profits, at least on paper. In addition, cash bonuses for the highest-paid C.E.O.’s are at three times prerecession levels, the report said.

Of course, these sorts of pay figures invariably push the buttons of many ordinary Americans. Yes, workers’ 401(k)’s are looking better than they did in some recent years, but many investors still have not recovered from the hit they took during the financial crisis. And, of course, millions are out of work or trying to hold on to their homes — or both.

And it’s not as if most workers are getting fat raises. The average American worker was taking home $752 a week in late 2010, up a mere 0.5 percent from a year earlier. After inflation, workers were actually making less.

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But Nobody Pays That: U.S. Business Has High Tax Rates but Pays Less

Topping out at 35 percent, America’s official corporate income tax rate trails that of only Japan, at 39.5 percent, which has said it plans to lower its rate. It is nearly triple Ireland’s and 10 percentage points higher than in Denmark, Austria or China. To help companies here stay competitive, many executives say, Congress should lower it.

But by taking advantage of myriad breaks and loopholes that other countries generally do not offer, United States corporations pay only slightly more on average than their counterparts in other industrial countries. And some American corporations use aggressive strategies to pay less — often far less — than their competitors abroad and at home. A Government Accountability Office study released in 2008 found that 55 percent of United States companies paid no federal income taxes during at least one year in a seven-year period it studied.

The paradox of the United States tax code — high rates with a bounty of subsidies, shelters and special breaks — has made American multinationals “world leaders in tax avoidance,” according to Edward D. Kleinbard, a professor at the University of Southern California who was head of the Congressional joint committee on taxes. This has profound implications for businesses, the economy and the federal budget.

As Congress wrestles with how to get the deficit under control, one big point of contention is whether spending cuts will need to be accompanied by an increase in taxes on some individuals or businesses. Facing a full-court press from business leaders who say the tax system is outdated and onerous, President Obama, Congress and business leaders have been warily negotiating various proposals, though mostly about whether to cut the top corporate rate and to tighten tax laws and not about whether to increase revenue.

The United States is virtually alone in trying to tax its multinational corporations on their foreign earnings, but it allows companies to avoid those taxes indefinitely by keeping profits overseas. That encourages companies to use accounting maneuvers to shift profits to low-tax countries and to invest profits offshore, says David S. Miller, a partner at Cadwalader, Wickersham Taft in New York.

Honeywell International, the New Jersey company that makes things as diverse as aerospace components and First Alert smoke detectors, reported in regulatory filings that in the last five years, it paid cash income taxes in the United States and abroad equal to 15 percent of its profits. On Friday, a Honeywell spokeswoman pointed out that the company had since made a large pension contribution, which effectively cut its profits and made its tax rate closer to 22 percent.

A major domestic competitor, United Technologies, reported an average of 24 percent over that time. A German rival, Siemens, reported 29 percent of its total profit.

In addition to being complex and uneven, the United States corporate tax code is inefficient and has become a diminishing source of revenue. Corporate taxes accounted for about 9 percent of all federal revenue in 2010. At $191 billion, they were equal to 1.3 percent of the nation’s gross domestic product. Most industrial countries collect more from companies, about 2.5 percent of output. Only a portion of that disparity can be explained by the many types of businesses in the United States that elect to be taxed at an individual rate.

“Whether the test is fairness or efficiency, the U.S. system gets really low marks,” said Michelle Hanlon, an M.I.T. professor who says the country needs to completely revamp the way it taxes corporations.

Not all American companies are willing or able to reduce their taxes drastically. Taxes vary more by industry here than abroad, according to a study released in February by Kevin S. Markle of Dartmouth and Douglas A. Shackelford of the University of North Carolina. At the high end, American retailers paid 31 percent in total income taxes, construction 30 percent and manufacturers 26 percent. Financial services companies paid an average of 20 percent, real estate 19 percent and mining 6 percent.

(Measuring taxes paid by companies is imprecise because tax filings remain private. In many cases, the estimates reported in a company’s financial filings with regulators overstate taxes paid in a year because they include deferred taxes. Nonetheless, academics, economists and elected officials use the estimates for comparative purposes.)

Because some companies are so effective at minimizing taxes, the average works out to far less than the official rate. United States companies pay about a quarter of their profits in federal income taxes, a few percentage points higher than the rate paid by companies in most other major industrial countries, according to a number of studies and tax experts.

Assorted proposals being discussed in Washington call for the rate to be lowered officially to about 25 percent and some tax breaks to be eliminated so that revenue remains unchanged.

But some prominent business leaders, including the chief executive of Procter Gamble, are pushing for the rate to be reduced without reining in tax shelters. That would make the United States virtually the only country to change corporate taxes in recent years in a way that ended up adding to its deficit.

“One fact we know is that in all of the countries that have lowered their corporate rates in recent years, they still collected the same amount in revenues or more,” said Reuven S. Avi-Yonah, an international tax lawyer who teaches at the University of Michigan. “This means that they were broadening the base of the profits that corporations were actually taxed on.”

Procter Gamble, whose products include Tide detergent and Crest toothpaste, paid an average of 24 percent of its profits in worldwide income taxes over the last three years, according to regulatory filings. That is nearly the same rate reported by two big European rivals, Unilever and Henkel.

Yet Robert A. McDonald, P. G.’s top executive, testified before a Congressional committee this year about the need to cut the United States tax rate without ending tax breaks and shelters. “We need a tax system that addresses today’s hypercompetitive global marketplace,” Mr. McDonald said, arguing that the playing field was tilted away from American businesses.

Many liberal groups counter that ending the breaks, subsidies and shelters in the corporate tax code could provide enough money to lower the rate several percentage points and still increase revenue.

Furthermore, some business owners complain that the American system unfairly rewards disingenuous bookkeeping rather than innovation. It forces companies to compete “based not on product quality and services, but on accounting gymnastics,” said Paul Egerman, former chairman and chief executive of eScription, a medical transcription service in Boston.

No one is certain how much creative accounting costs the federal government in lost revenue, but most estimates say it easily exceeds $50 billion a year. Targeted tax preferences, which Congress created to intentionally benefit specific companies or industries, cost an estimated $100 billion more a year.

Many tax analysts are skeptical that Congress, business leaders and the Obama administration will be able to reach a deal before the 2012 election.

“It’s human nature that people are going to fight harder to preserve a benefit they already have than to get some new benefit,” said Clint Stretch, a principal at Deloitte Tax and a former counsel to the Congressional Joint Committee on Taxation. “The only way tax reform makes everyone happy is if everyone wins. And with the federal budget where it is today, that’s not possible.”

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