The World's Unsexiest Business
adding a little sizzle to the convenience store industry
It shouldn't come as much of a surprise that a tremendous number of ideas may never actually become viable cash flow generating businesses because of a 'pesky' (tongue in cheek, of course) perceived barrier to entry: it’s simply too expensive to set up operations. And that’s accounting for the fact that in that particular area, demand may be reasonably high for the goods or services potentially being offered.
In a 2014 research report published by the U.S. Chamber of Commerce Foundation on what they titled ‘Enterprising Cities’, urban centers such as Dallas and St. Louis ranked the highest and therefore the easiest to setup a business. Breaking down their research components, the cost of obtaining construction permits were the highest in Los Angeles and San Francisco coming in at more than 3% of overall construction costs. And on a comparison basis, the costs to obtain construction permits in San Francisco and Los Angeles are about 10 times that of those in Dallas and Raleigh. However, the legal costs of setting up shop (“creating a formal entity”), were the lowest in Los Angeles and San Francisco described as “tak[ing] as few as four procedures and $70.” Maybe it has something to do with legal professional density and proximity. And then moving along the timeline of the evolution of the business, when it came time to enforcing contracts:
“Chicago, Dallas, and Atlanta have low waiting times compared with Detroit, Boston, and New York City, where a business could expect to wait more than a year to settle a dispute.”
But let’s assume that you got to the point where you’re up and running. A seemingly competitive city like Los Angeles (the city I live and grew up in) may appear to be difficult place to run a business, but according to a 2016 KPMG study, it isn’t all that bad. In fact, it’s only .8% more costly to do business there when compared to the entire United States on the whole. On the cheapest end of the spectrum, Atlanta and Miami are the least costly coming in at 4.9% and 4.6% below baseline respectively. While on the other, New York City and Anchorage far surpass the baseline with values off the charts at 4.7% and 8.1% respectively. As a side note, it’s difficult to determine the split between the industries being evaluated, cost of labor (hourly vs. salaried), goods, among other ancillary items.
Big Mac Index
Broadening our geographic focus, let’s now explore something we might be able to better sink our teeth into (that pun is simply unforgivable) -- The Economist Big Mac Index. As of January 2017, The United States is the 6th most expensive place in the world to buy the “two all beef patties, special sauce, lettuce, cheese, pickles on a sesame seed bun.” The most iconic of McDonald’s menu offerings. Surprising? Perhaps you may need to reconsider stateside entrepreneurship altogether. But when countries, more recently fraught with instability on many different fronts, such as Egypt and Ukraine appear at the bottom of the list (cheapest burgers), surely stability should warrant a financial (stability) premium.
Can you believe that in these two countries, the Big Mac was undervalued by more than 50%?
I certainly can’t rule out an aggressive ‘competitive’ pricing structure by a master franchisor or even extremely low supplier costs. And, of course, that generalized ‘linear’ argument is not entirely intended to take away anomalies -- that being from the relative perceived safeness of a country like Taiwan which finds itself oddly wedged between Mexico and Russia.
If you do business in the state of California and have a sizable minimum wage workforce, I’m sure you’re well aware that as of July 1, the state minimum wage increased to $12 for employers with 26 or more employees. But a rather large looming question is it ultimately going to benefit the minimum wage earners? I’m inclined to say maybe with a strong bias towards no. Given my lack of a truly enlightened academic perspective on the issue, I'll leave the nitty-gritty minutiae to a legislators versus labor economists forum.
Speaking to my ‘no’ bias, from a pragmatic entrepreneurial point of view, I will add that in all well purposed idealism, the measure is seeking to narrow the gap between rich and poor by a bottom up approach. I’d also like to make it entirely clear that I personally support any restoration of a middle class.
But that doesn't mean the intended recipients of the bump in pay will see the increase in its entirety. After all, with declining margins in brick and mortar businesses (where a large chunk of minimum wage labor exists), what's the incentive for the business owner to not cut overtime followed by a reduction of wage hours? And then when wage increase become so financially punitive, a last ditch effort comes into play for which eventually the business succumbs to labor force downsizing--ultimately realizing to the perilous fate of a closure. The last step that’s alarming yet largely ignored is a consideration of how purchasing power could plummet as the measure works its way through the greater economy.