Our Government Is Doing This to Us

Introduction:

This week, Shawn Busse, Jay Goltz, and Liz Picarazzi talk about the uncertainty coming out of Washington and the stress it’s putting on their businesses. Liz, for example, has had to rethink her supply chain and her pricing on an almost daily basis as the tariff situation continues to evolve. Both she and Shawn believe they’ve lost potential clients who’ve been spooked by the uncertainty. The three owners are figuring out ways to cope, but what they find most galling is that none of this had to happen. “It’s like a manufactured recession,” says Jay. Plus: We also talk about Paul Downs’ recent comments that when he had to decide which employees to lay off, he took into consideration personal circumstances such as who just had a kid and who put a down payment on a house. That’s a natural reaction, but is it a good idea? Or is it trying to play God?

— Loren Feldman

Guests:

Shawn Busse is CEO of Kinesis.

Jay Goltz is CEO of The Goltz Group.

Liz Picarazzi is CEO of Citibin.

Producer:

Jess Thoubboron is founder of Blank Word.

Full Episode Transcript:

Loren Feldman:
Welcome Jay, Liz, and Shawn. It’s great to have you here. Liz, last time you were on and we talked about your tariff situation, you told us that you thought you were pretty well prepared. You had set up a bunch of options. Of course, much has happened since then, and I want to see if I can summarize it quickly, based on your recent LinkedIn post. I think the things we really need to focus on are that when you started manufacturing your trash enclosures in China, the tariff was 3.7 percent—and, of course, you’ll correct me if I get any of this wrong. The tariffs imposed by President Trump in 2018 took it to 17.5 percent. Then he lowered it to 7.5 percent, where it stayed for six years.

During the presidential campaign, he threatened a 60-percent tariff repeatedly. So last year, you shifted some of your production to Vietnam. After Trump returned to office, he quickly announced tariffs of 25 percent on Canada and Mexico—you had been looking at Canada as an option before that—while raising China by only 10 percent, which I guess sounded pretty good at the time. That would have put you at 17.5 percent, which is certainly better than 60 percent.

But then Trump dropped or postponed the 25-percent tariffs on Canada and Mexico, but instituted a 25-percent tariff on any steel or aluminum coming into the country from anywhere. And that’s in addition to any previous tariffs, which means your tariffs for your trash enclosures made in China will now face a total tariff of the 7.5 percent you started the year with, plus 10 percent Trump initially added on China, plus the 25 percent on steel and aluminum, all of which adds up to 42.5 percent. So if this actually happens—and we still can’t really say for sure—you will have gone from 3.7 percent to 42.5 percent. Do I have that right? And what does that mean for you?

Liz Picarazzi:
So you have that exactly right. I’m glad that I wrote it clearly enough in my LinkedIn article. It was really difficult to get all the shifts correct, but you have it right. The 42.5 percent is really new for me. It’s like three days old, because on the day that the 25-percent on aluminum and steel happened—that was actually on Super Bowl Sunday—I falsely assumed that that was my new China tariff. I did not know that it was additive.

Loren Feldman:
So you thought it would be a total of 25 percent.

Liz Picarazzi:
I thought it was going to be a substitution. I didn’t think it was an addition. And that was really just such a shock this week, for so many reasons. Part of it is that it’s really hard to get accurate information. I mean, I’ve spent hours scouring Google, looking in the Wall Street Journal, all the main publications, even talking to my trade attorney and my customs broker. They’re still a little bit in the dark. But one thing that they do know is that when these typically are added on, it is additive. It’s not a substitute. So I guess it was on Monday or Tuesday, hearing from both my customs broker and my attorney that it is in addition, I was really in shock. It took me—I wouldn’t have been able to talk to you about this a couple of days ago. And I wouldn’t have been able to talk to you last week.

So I think the thing that’s disappointing is that we spent a lot of time, and we were very methodical about moving some of our manufacturing to Vietnam in a proactive way. I mean, it’s something that I’m very proud of our company and our partnership with our overseas partners, that we were able to move things over and start to feel really comfortable with manufacturing in Vietnam.

The other thing, in the very brief time I thought that I was at 25 percent for China and Vietnam, I really liked the idea of being able to choose which one I worked with based on price and timing. So like right now, we have a huge order in with Vietnam. There’s a few things that we sort of want to give to them, additional production, and we were going to give that to China because we didn’t want to jam things up with Vietnam. They’re still pretty early as a supplier to us. China has been our supplier for almost eight years. And once China switched from 25 percent to 42.5 percent, I lost that leverage, and it feels like I’m less diversified now.

Loren Feldman:
Because you’re gonna keep giving more business to Vietnam?

Liz Picarazzi:
Yeah.

Jay Goltz:
Can you do the math on this and just give us an example? A typical unit, how much is it, $1,000, $1,500? What is the typical—just give me a number.

Liz Picarazzi:
We would say $3,000, if it were a 2-module.

Jay Goltz:
Okay, so it’s $3,000. With the new increase, how much is that going to increase your product cost on that $3,000 unit?

Liz Picarazzi:
Well, I would say—and I should get this absolutely correct—but my margin went down about six points.

Jay Goltz:
So that’s $200.

Liz Picarazzi:
I’m probably wrong on that.

Jay Goltz:
Okay, whatever it is, here’s my point: This is capitalism. Everybody’s got the same issues you do. Everybody’s got to pay the tariff. My argument is: Your units are architectural-grade, look beautiful, and people with expensive places are not going to put a Rubbermaid thing out there. And my argument is, price elasticity-wise, if you have to raise your price from $3,000 to $3,200, most people are going to pay it because their other option is to have their stupid garbage cans sitting out there with nothing around them or have a Rubbermaid thing.

So like, I think you’re going to be just fine. I think they will pay the price for it. Because I just picked up dinner for four of us—and two little kids. It was $250 to pick up dinner. Like, I didn’t not pick it up. I didn’t go, “Oh, I think I’ll go make cheese sandwiches for everybody.” I mean, there’s a hundred things we all buy that are costing more than we’d like, and we pay it. So I don’t think this is going to be a killer for you.

Liz Picarazzi:
Well, I know that you’re very optimistic about that, but given the state of the whole world and just the uncertainty, I think that people are being more cautious about their spending. I think that people know that there’s sort of chaos. It’s not just brewing, it’s already erupted, and they’re being a little bit more conservative with the spending. Municipal is now 40 percent of my business, and I do worry that municipal clients are going to say, “This is a capital improvement that we’re going to wait on.”

Jay Goltz:
That’s true and all—I’ve got the same issues you do. I’m just suggesting it’s not related to the tariff. That’s just general business. You know, my business is off also, for the same reasons you just described. I don’t think it’s related to the fact that your unit’s going to go from $3,000 to $3,200 is my point.

Loren Feldman:
Well, we don’t know that those are the right numbers.

Liz Picarazzi:
No, actually, I would say those are not the right numbers. And I wish I would have been a little bit more prepared. 25 percent in Vietnam, we’re looking at a price increase of 15 percent, and it’s probably going to be communicated next week. But we’re also waiting, because the official imposition of the new tariffs is March 12, and if he is just lying, or he’s just hedging, then we’re gonna want to wait.

Loren Feldman:
Or if he’s bluffing, I mean, one argument—some people are hoping that he’s doing this to try to cut a better deal, and I guess there’s some chance of that.

Jay Goltz:
So when you say 15 percent, you mean you think you’re gonna have to raise your selling price 15 percent?

Liz Picarazzi:
Yeah.

Jay Goltz:
So that’s $450. Are you going to make any profit on that increase, or is that just passing along the increase? Because it sounds like that’s not just passing along the increase.

Liz Picarazzi:
Yeah, I mean, we’re going to maintain our profit at that level.

Jay Goltz:
Profit dollars, or profit percentage? They’re very different.

Liz Picarazzi:
Profit dollars, actually.

Jay Goltz:
Yeah. Okay.

Shawn Busse:
So the percentage goes down. Liz, one of the questions that I’ve always had, and I knew you were exploring this, is the tariff—it must be finished goods, too—not just on raw materials.

Liz Picarazzi:
It is, yeah. So as of the surprise Super Bowl announcement, there’s hundreds of additional HTS codes—that’s the Harmonized Tariff codes that they use for customs. And there’s hundreds more on there. I, for many years, was at the 7.5-percent level, because I was a finished aluminum product, where anybody else who was bringing in raw aluminum was paying 25 percent. That’s no longer.

Shawn Busse:
Yeah, see, I think that public perception is very different, in terms of reality. I think a lot of people are like, “Yeah, this is good because we’ll rebuild the American aluminum manufacturing base,” which is a crazy idea to begin with. But let’s just say that’s your belief. I think a lot of folks don’t realize that this affects everyday products that are finished in China or Vietnam and so forth. That’s pretty dramatic.

Jay Goltz:
So yeah, let’s just walk through that theory, though. So there’s big tariffs. So someone’s going to say, “Oh, I’m going to build a plant to make metal products now in America,” and how long will that take? And then how long until he’s out of office? Because, yeah, he is going to be out. They’re going to go spend millions of dollars building a new factory, and the day after he’s out of office, they get rid of the tariffs. No, it’s not going to happen.

Loren Feldman:
He could get rid of the tariffs before he leaves office.

Jay Goltz:
Yeah, right. It could be a month from now.

Loren Feldman:
A couple of things I wanted to make sure we’re clear on, Liz. One is, where do you stand right now, in terms of inventory? Do you have inventory? Do you have shipments on the way? What’s that look like?

Liz Picarazzi:
So we are at about a third inventory right now in our warehouse, and we have five containers coming over in the next two months: three from Vietnam and two from China. They’re all going to be taxed or tariffed at this much higher rate.

Loren Feldman:
Assuming they go into effect.

Liz Picarazzi:
Assuming they go into effect. But the incremental tariff, meaning the unexpected tariff that was not planned for, is $103,000.

Shawn Busse:
Across all five?

Liz Picarazzi:
Across all five containers.

Shawn Busse:
So, $20,000 per container, give or take?

Liz Picarazzi:
Yeah.

Loren Feldman:
And Liz, with those shipments, are those containers already bought and priced, or is that inventory that you can sell at a higher price?

Liz Picarazzi:
So it’s a mix. We’ve sold about 25 percent, maybe 30, across the five. So there’s some clients that are waiting on product they’ve already paid for. The others we can price at the higher amount. But the sort of intermediary time is the thing we’re a little bit worried about right now, because until we communicate that price increase, and we’re pricing at the lower rate, we’re pricing at the lower rate knowing that we’re probably going to be at a loss on those.

So I asked Frank yesterday—we were kind of arguing about whether it’s March 1, March 15, and later. I was like: “This is actually sort of a simple exercise. We can lay out how much we’re going to sell in the next two weeks versus four weeks at which tariff amount and see how much we’re going to lose.” Because, as I’ve shared on here before, he’s very resistant to price increases—understandable. But that’s also because he’s in sales. He does not like the idea of people being disappointed by a price.

You know, he’s the COO, but he also is incredible at sales. He’s doing a lot of that. And I really need to keep it numbers-based and say, “We’re looking at this huge amount, six figures of unplanned tariff, and you’re basically saying that we’re going to go another two to four weeks selling at a price that we know is too low.” And that’s difficult. But like I said, this March 12 date is coming along, and we hopefully will know if he’s bluffing then.

Shawn Busse:
So I’ve been watching what contractors are doing with this. So this is a big problem for construction, because especially in commercial, they’ll put a bid in and say, “Hey, I will build this building for X amount.” And then, the building gets built like two years later. That can be a real problem if tariffs get put in place and costs go up. So they have in their contracts escalation clauses that are related to things out of their control. I’m curious, have you thought about anything like that? You know, where you say, “Hey, this is the price. But if tariffs are put in place, this is the price.”

Liz Picarazzi:
I think that we will do that. The closest that we will come though is saying, “We’re communicating it today, and the price is going to increase by 15 percent,” or give them the dollar amount on X day. So whether we give them one week or two weeks, it probably would be good to put something in our invoices besides just, “This price is effective until X date.” But you know, the point on contractors and raw materials, I do hear you, Shawn. Because when you put bids on something and you get the job, if you don’t know that your materials costs are going to come up so much, that’s difficult. You know, that’s a hard situation.

The factory in Canada that I met with in October, and we went and visited. We really liked them. We were ready to place an order. And a couple weeks after we visited there, they got hit in Canada with a 25-percent tariff on import from China, the Canadian government. And as if that wasn’t bad enough, then Trump imposed—I know it’s on hold right now—but the 25 percent on Canada. So that guy, another small business owner, family-owned business, suddenly, he’s getting tariffed from both sides. He’s a metal fabricator. He’s only dealing with metal. That’s it. What is he gonna do? I mean, he’s got a couple of really big contracts that I know about, because he shared, in the U.S., and he’s in a really bad spot.

Jay Goltz:
Wait, how much is the tariff going up incrementally from what it was?

Liz Picarazzi:
Well, as of two weeks ago, I was at 7.5 percent. Actually, I should say three weeks. I’m getting confused with time. But on January 20, I was at 7.5 percent, and now I’m at 42.5.

Shawn Busse:
Wow.

Jay Goltz:
So, 35-percent, okay.

Shawn Busse:
It’s a big deal, Jay. I mean—

Jay Goltz:
I got it. But this is equivalent to someone telling me his wife was really, really, really sick. And I go, “I can’t believe she doesn’t like going to the doctor.” Tough! She should have gone to the doctor, right? Here’s a case of: No one likes raising prices. Frank needs to understand there isn’t an entrepreneur around, probably—we don’t like raising prices. You go to the doctor when you have to go to the doctor, and you raise prices when you have to raise prices. It’s not any more complicated than that.

Liz Picarazzi:
I think that’s a false equivalency, Jay.

Jay Goltz:
Why?

Liz Picarazzi:
Because a medical issue is not the same as buying a high-price trash enclosure that’s going to make your house look better. It’s totally different.

Jay Goltz:
No, no. But my point is, if you’re going to sell it and not make any money, the business is going to get sick. And if you have to raise your prices to make money, that’s what you need to do. “You need to do what you need to do” is the message. If you need to raise prices, you need to raise prices, whether you like it or not. No one likes—I don’t like to raise prices. It makes me sick to my stomach, but I read it every day in the paper.

Today, the guy was talking about eggs went up. He doesn’t want to raise his prices on his omelette. He doesn’t want to do that to his customers. Really? Fifty cents more is going to put his customers in the poor house? This is a common problem in entrepreneurship. People don’t want to raise their prices. And I’m suggesting: It’s not really a choice. It’s either raise your prices and stay in business, or don’t raise your prices and lose money. How long is that going to last?

Shawn Busse:
Liz doesn’t know what her elasticity is at this point.

Liz Picarazzi:
Right.

Jay Goltz:
It doesn’t really matter, is my point.

Liz Picarazzi:
I’m not a commodity like eggs.

Jay Goltz:
Okay, but I’m just suggesting, even though you don’t, the other option is losing money. So the question is: Do I lose money for sure, or do I raise my prices and hope that the price elasticity is such that I won’t lose a lot of business? But not raising your prices when you have to, is not a great choice.

Shawn Busse:
Jay, it’s not binary.

Jay Goltz:
Why?

Shawn Busse:
Well, she doesn’t know. If she raises her prices by 5 percent, it could be that the market accepts that. If she raises her price by 20 percent, the market may not accept that. She doesn’t know. That’s the piece.

Jay Goltz:
I got it. But not raising the price, she’s going to lose money.

Liz Picarazzi:
But that’s not the issue. Jay, I never said I wasn’t going to raise prices. It’s been a matter of, by what amount? I’ve been totally comfortable. I’ve known for a while that these tariffs are coming, and I’m going to raise prices. But because it’s been a roller coaster with what the number was, I didn’t want to reset prices, because there’s a pretty big difference between 17.5 percent, which is why I was actually flying high. I thought my tariff was lower than Canada and Mexico a few weeks ago.

Jay Goltz:
I totally agree and understand all that. I’m just commenting to Frank’s comment that he doesn’t want to raise prices. That’s my whole point, is that we don’t have to want to. Sometimes you just have to do what you have to do.

Shawn Busse:
Jay, I mean, Frank’s not dumb. There’s a tension there, in terms of how much they can raise. But I think Liz’s main point here that I’m hearing is: It’s not so much that she has to raise her prices. She knows that’s going to happen. She’s known that’s going to happen. It is the uncertainty and volatility and bullshit that she’s being put through by our government. I mean, that is the issue we need to focus on here, right? Which is the untenable business environment that Liz has to suffer through, that her Canadian counterpart is suffering through, that other businesses are suffering through. That is the point we need to talk about here as a small business podcast.

Loren Feldman:
But first, Jay, you’re obviously very confident that Liz can impose these price increases—

Jay Goltz:
No, no, don’t get me wrong. I’m not confident. I’m just saying that you have to do what you have to do, and I think it will work okay.

Loren Feldman:
But she never said she’s not going to raise prices.

Liz Picarazzi:
I never said that.

Jay Goltz:
I was just responding to Frank saying he doesn’t want to.

Liz Picarazzi:
And Frank also is not saying that he’s not going to. It’s just that we’ll go back and forth on whether it should be 10 or 15.

Jay Goltz:
I got it. I’m just trying to give some moral support to having to do what you got to do. [Laughter] Because, certainly, I’m in the same boat you are. Trust me.

Shawn Busse:
Well, actually, no. No, you’re not, Jay.

Jay Goltz:
Why?

Shawn Busse:
Here’s the thing that you don’t understand that I understand. Liz and I sell a very high-dollar product at a low, low volume. You sell a premium product, too. Don’t get me wrong. But a $200 frame is very different than, in my case, a $100,000, year-long engagement, or, in Liz’s case, maybe multiple $3,000 trash enclosures.

These are different sales cycles. There’s different psychology to them. And one of the challenges she has is she’s got 40 percent of her business in municipal. What is happening in municipal right now? Federal dollars are being withheld, federal programs are being tossed up in the air, which flows down into the municipal place. So her issues are way more complex than a retailer raising the price of eggs.

Jay Goltz:
Okay, and I’m simply stating math. So you’re wrong, telling me that I don’t understand this. [Laughter] This is simple math. If you’re selling something where you’re losing money on it, it’s not a good thing.

Shawn Busse:
Neither of us are arguing to sell at a loss.

Jay Goltz:
Okay, that’s all.

Liz Picarazzi:
No, we’re not. We’re not. And in terms of the sensitivity, given the volatility with government and with federal programs, we did lose a municipal client two days ago, which I didn’t mention. I’m not going to say which city it is. I don’t know if that’s definitely the reason, but we got a very sort of system-generated email saying that the contract that we had signed had been canceled.

And it wasn’t a crazy dollar amount, but it was something where we were getting in the door on something that could have been bigger. And I’m pretty sure that that does have something to do with the volatility, with anything government-related, anything municipal-related. And I’m hoping it’s an outlier, but it wasn’t a good sign.

Loren Feldman:
Do you have a way of measuring the strength of demand. I mean, do you have a metric that you follow, some indications? Do you know how strong the demand you’re facing this year is as you try to increase prices?

Liz Picarazzi:
So the good news is that we have really strong demand, including in some new categories. We do have a new product that’s for municipal clients that is really becoming very popular. It’s been popular in other cities for about a half a year now, but New York is starting to look at it a little bit more. There’s other things that are happening with regulations regarding trash, particularly in New York City with business improvement districts, where if things go through as they’re supposed to, business improvement districts are basically going to get fined if they allow any trash to be on the sidewalk as of August. So they are being forced to containerize, but forced to containerize without having the budget for it.

So that thing may go away, but I’m feeling like demand is still pretty strong. And then the other thing is, we are going into some new markets. So we just launched a higher-ed campaign on Monday, and even—today’s Thursday—we’re already getting really strong responses to that. It’s been a category that we have had some clients in the past, and we’ve got Harvard. We’ve got four universities here in New York, and we haven’t actively marketed to them. So what happens if we start marketing to universities nationwide? That could help recover the whole thing. Because it’s a new customer segment that we haven’t—it’s not new, but it’s one we haven’t in earnest pursued.

Jay Goltz:
Which is why this is complicated. Because the point is, yes, you could have a smaller margin, but if you could do better marketing and bring in more business, it can make up for it. So I don’t disagree with anything anybody’s saying here. It’s just complicated, and my entire point is, most entrepreneurs, including myself, hate to raise prices. And that’s unfortunate. Just because we hate to do it doesn’t mean we don’t have to do it sometimes.

Liz Picarazzi:
Okay, I have one last thing to say on this, Jay. Please don’t ever compare my product to an egg. [Laughter]

Jay Goltz:
It’s not comparing it to an egg. It’s comparing it to an entrepreneur who owns a business whose costs have gone up. And he says, “I don’t want to raise my prices. I don’t want to do that to my customers.” That was the point.

Liz Picarazzi:
But I don’t think people are going to stop eating eggs. They’re just going to pay more for it. Maybe they eat less eggs.

Jay Goltz:
You just made my point exactly. So he needs to do what he needs to do. That’s my only point. Just because we don’t like to do it doesn’t mean that we don’t have to do what we don’t have to do. And my biggest mistake in business, without any doubt, in the last 46 years, is I’ve been hesitant to raise prices when my costs went up, and it’s cost me dearly. So it’s a sore subject to myself, about myself.

Liz Picarazzi:
A scenario we’ve talked about is that we raise it 15 percent, and we don’t have any reduction in business. That could happen. But I need to be prepared for it not to happen.

Jay Goltz:
Absolutely.

Loren Feldman:
So, Jay, you could face this situation. One of the tariffs that Trump is talking about is these reciprocal tariffs, where a different rate would go into effect on every country based on his assessment of how that country is tariffing and taxing products coming from this country into that country. So this could affect countries where you buy your stuff.

Jay Goltz:
For sure, for sure.

Loren Feldman:
Are you preparing for that?

Jay Goltz:
There’s nothing to prepare. It’s like saying, “Should I prepare myself if I get run over by a car tomorrow?” I mean, I’m watching when I cross the street. What can I do about it? There’s nothing to prepare. If it happens, I’ll deal with it when it happens. But this is another case of, I could give you 20 things that I could stay up at night worrying about, and I‘ve chosen not to, because I need to sleep. So, like, this is the world of entrepreneurship.

Loren Feldman:
Yeah, but this is more real and more right now. And I’d just point out, you do have a product that has a reputation—picture framing—for being expensive already. So you have dealt with this.

Jay Goltz:
I deal with it every day, absolutely.

Loren Feldman:
And have you thought through how much elasticity there is there, and what would happen if you—

Jay Goltz:
Same story. I just said: If I have to raise my prices, I can’t worry about it. I gotta charge what I gotta charge to stay in business. Do I think people will pay it? The point is, you have two choices: If you have a choice of, if I don’t raise my prices, I’m going to lose money. Or I raise prices, and I hope people will pay it. I’m going to go with the raise prices and I hope people will pay it. There’s just, there’s no other option.

So am I prepared? I’m watching it. I bring a lot of molding in from Italy and Spain. I mean, will that screw up my business? Sure. Back to Shawn’s point: This is screwy. This isn’t—I love how the government always says, “Oh, small business is the backbone of America. Blah, blah, blah.” Yeah, it doesn’t act like it.

Loren Feldman:
Well, this isn’t just a routine government situation. This is a different government.

Jay Goltz:
Yeah, I’m just—it’s not great. It’s a bad situation.

Shawn Busse:
These are deliberate choices. This is a very specific set of decisions. And I mean, I’m gonna sound like an old saw here, but I think this is all about power and control, and there is not one iota of care for small businesses and how it’s impacting them, not one bit. And that’s what’s really, really disappointing.

Jay Goltz:
How about yesterday’s announcement that the government should stop paying vendors just because they can? How about that one?

Loren Feldman:
Well, just to be clear, he didn’t say “stop paying.” He said that the government should do what he always did as a developer, which is sign a contract, and then when it’s time to pay it, cut it and insist on paying less.

Jay Goltz:
My lawyer told me 20 years ago, “Jay, here’s how it works. In Chicago, when you do a contract, people follow the contract. In New York, you make a contract, and then you count on the fact that you’re going to be renegotiating the contract later on.”

Shawn Busse:
Unbelievable.

Loren Feldman:
Liz, you’re in New York. Any truth to that?

Liz Picarazzi:
I mean, I don’t know that. I haven’t experienced it. But I do have a story. About a month ago, we actually got a call from Trump Tower [Laughter] for the restaurant in Columbus Circle. I think it was on the first floor. Frank had a long phone consult, sent him the information, and the guy asked him to come for a physical, on-site, estimate visit. And he said, “No.” He’s like, “I’m not gonna spend my time on that. I’ve given him all the information he needs.” And if they’re still interested, seriously interested…

But everybody I told about this, they’re like, “Make him pay 100 percent upfront.” Why wouldn’t we? We actually do that anyway. So if they try to renegotiate anything, they’re not gonna be able to do it because we’re already gonna have their money. I don’t think we’re gonna sell to them. In fact, our daughter actually thinks it might be immoral for us to even do business with them. [Laughter]

Jay Goltz:
Good job on raising that child.

Shawn Busse:
Oh, man.

Liz Picarazzi:
I have one more point, though, and maybe you guys, especially Jay, with your encouragement over the years for me to buy a warehouse, some sort of a big capital expense: In the scenario that I did, say, manufacture in the U.S. I want to do that. Help me do that. Can you guys give me a loan so I can set up manufacturing here in New York? No bank’s going to give me that loan. The SBA, which is also being dismantled, they’re not going to give me that loan.

In fact, I think the only way I could do it here—and this may sound really scandalous—is if the Chinese funded me to set up a manufacturing facility in the U.S., because that’s part of what they’re doing. I’m not pursuing that, but let’s just say I got serious. I’m an American. I want to manufacture in the U.S., and I need capital to do it. I’m not going to get it from anybody, because no one is going to be stupid enough to think that we’re ever going to have a renaissance of manufacturing in this country. I just don’t see it happening.

Shawn Busse:
Or not in the timeline where it would matter. You know, I do see that as a larger trend, that there is more and more manufacturing and more and more re-shoring, but the idea that you could do that within the timeline of your business is pretty unrealistic, I think.

Jay Goltz:
Or probably not in lower priced stuff. I’m sure there are some cases where you can start manufacturing in the United States, but there’s plenty of cheaper products that we’re not going to go backwards and start manufacturing cheap products. We’re not going to open—no one’s going to open up a shoe factory in the United States.

Shawn Busse:
Well, there is manufacturing here. If you go to any city in any state, you’ll find a machine shop. And many of these machine shops have thousands, probably millions of pounds of aluminum and steel flowing through them. All of that material—or nearly all of that material—is coming from other countries. And those machine shops serve the defense industry. They serve the aerospace industry. They serve consumer goods.

The tendrils that go throughout our economy, in terms of raw materials, these kinds of things will dramatically affect costs. And you’ll just see higher and higher costs, because there’s no way for that machine shop to change that reality. There’s no way for them to get aluminum somewhere cheaper. It just doesn’t exist. So folks just don’t understand these consequences.

Jay Goltz:
So we are going to be accused—because I think we already have been—of going, “Oh, we’re going left-wing on this.” And I just don’t think this has anything to do with left wing or right wing. It’s business reality. Those of us that are in business don’t believe that the tariffs are going to do anything positive for the small business owner. And the uncertainty of it, as Liz is living through, as I’m almost living through, is very bad for business. This is very difficult for small businesses. We’re the voice of small businesses—not left wing, not right wing—the voice of small business. This is the reality of the business market that we’re dealing with now.

Shawn Busse:
I mean, I get it, too. I don’t do manufacturing, but I have a potential customer that’s up in Maine. He’s a manufacturer. He makes cardboard cartons. He gets almost all of his material from Canada. And the thing is, the production in America is just not large enough to fulfill the need of folks like him. And so he was talking about working with us, and what does he do? He calls us up. He’s like, “Hey, let’s pick this conversation up in Q3.” You know, he’s kicking the can down the road because he doesn’t know what’s going to happen. And that discussion, I am convinced, is happening everywhere.

Jay Goltz:
I just had it myself. I was that guy yesterday. The radio station that I was on for years wants to do a good promotion with me, and I was very excited to do it. And I had to tell them, “I need a couple months. Business has been soft.” And the fact is, I got to pay the advertising bill. As much as you might think, “Oh, gee, if business is soft now, it’s time to advertise. “Well, the cash flow from that is not immediate, so I just had that conversation. I had to kick the can down the road on that. So to your point, this is trickling all the way from us to all of our suppliers. And the part that’s frustrating is it’s largely self-made. I mean, this isn’t a normal recession. It’s like manufacturing a recession.

Shawn Busse:
I know, it’s crazy.

Liz Picarazzi:
Well, and also, there’s going to be some incredible inequity with it too. Because, as I pointed out in my LinkedIn article, I manufacture at a plant outside of Shanghai. Well, so does Elon Musk. Teslas, half of them are manufactured outside of Shanghai, and they probably leave the port of Shanghai just like my little containers do. Is he going to be tariffed at 42.5 percent? What do you think? What do you guys think? Do you think he’s paying 42.5 percent when it comes over here?

Shawn Busse:
No way, no way. I mean, that’s to my larger point that I keep making on LinkedIn, which is that this is a fealty play. This is about paying fealty to the United States and to Trump, specifically, and those who he has favor with will get exceptions to the tariff, and those that he does not favor will pay the tariff. This is entirely about that power and leverage. It’s not about manufacturing.

Liz Picarazzi:
And there’s a lot of us who are going to pay a lot of legal bills to try to get an exception or get reclassified who are going to fail at it. I mean, I tried the last time. Maybe I was dumb. I filed on my own. I didn’t use a lawyer for it, but—

Shawn Busse:
No, it’s incredibly—it’s super hard. I had a client who hired a lawyer and went through battle after battle after battle after battle, and then lost. And guess what? They’re no longer a client. Another example.

Jay Goltz:
So first we’ve got to deal with the uncertainty of it, which is very difficult. Then we’ve got to deal with: Okay, do I build it into the price? And if I don’t build it into the price, how am I going to make up for it? Am I going to start looking for new markets and make it up in volume? Maybe. And this is very tricky, and it requires lots of 21 Hats to figure it out.

It’s accounting, it’s sales, it’s costs, it’s real estate. They’re all interconnected, as you just said about buying a building. All these things are interconnected as to how you navigate all this stuff, and it’s just not getting easier. And the part that’s particularly frustrating is our government’s doing this to us.

Liz Picarazzi:
Yep.

Shawn Busse:
Yeah.

Loren Feldman:
All right, I want to move on to something else in the time we have left. As you guys are all aware, a couple of weeks ago, we had a conversation in which Paul Downs talked about how his business is off. Some of it related to issues we’re talking about here, I suspect, but he had to lay off a couple of people. And he talked about how he decided who he would lay off, and he acknowledged that part of that decision for him was taking into consideration the personal circumstances of his employees, including things like who had just put a down payment on a house and who just had a kid.

And it was part of a larger point he made, which is that this is what he loves about being a small business owner. There are a lot of challenges, but he really likes his employees. He enjoys getting to know them. And once you get to know those things, it’s impossible not to know them. But it opens an interesting discussion, which we’ve had a little bit on the 21 Hats Slack channel. I’m curious what you guys think. At a time like that, is it a good idea to be thinking about the personal circumstances of employees. Or is it a better idea to just focus on what is best for the business, for the organization?

Jay Goltz:
I don’t think it’s good or bad. I think it’s a personal decision. Business owners have to put up with a whole lot of risk and trouble and everything else, and I believe every business owner has a right to do whatever they want to do without discriminating. And certainly there’s a limit to that, but if you’ve got someone who’s a single mother with a special needs kid, and you’ve got another employee in a similar job who is a zillionaire because they got a big inheritance, does that person have the right to make—I believe that as business owners, whether it’s right or wrong from the employee standpoint, they have a right to do what they like. And the employee has a right to be pissed about it and quit. Two things can be right.

Loren Feldman:
Jay, I think we probably all agree that the owner has a right to do it. Is it a good idea, and does it potentially create more problems than it solves?

Jay Goltz:
Well, it certainly doesn’t cause a problem for the person they didn’t lay off. But could it cause problems? Sure, absolutely. No, absolutely, it could cause problems.

Loren Feldman:
It does send a message, if people figure it out. And where do you draw the line? Would you also pay someone more because they have a family to support than you would someone who is single?

Jay Goltz:
What about a trickier one: You’ve got an employee who’s been with you for 30 years, helped you start the business, has been there through good and bad, and they’re kind of losing it a little bit. They’re not as productive as a younger person that’s there. Do you lay them off first? Or do you feel like, “Hey, I owe them. They helped me build this.” This is very tricky stuff, and I don’t believe there’s any, quote-unquote, right answer to it.

Loren Feldman:
Shawn or Liz, what do you guys think?

Shawn Busse:
I think Liz should go first, because, especially based on, you came out of the corporate world, right? And there’s a much larger data set there. And then you’ve owned a small business. So I’m curious what you’ll say.

Liz Picarazzi:
I mean, when it’s in a large enterprise, I think that it’s probably much more objective, in a way. You have to do it that way. You can’t have specific criteria. In my small business, I’ve really only had to lay off for cause, like performance or stealing. But the only other time I did major layoffs was during the pandemic, when I laid everybody off until we got the PPP. So I don’t know if I’m the best to talk about it. But I think, though, if I was faced with the situation, I probably would take family situations into consideration, especially if I really cared about them.

And right now, I care about all my employees. I will protect them. And actually, this is a separate topic, but I have six Venezuelan employees who aren’t feeling very safe in this country right now. And they all have papers, obviously. I’ve employed them. But we’ve got ICE all over the place in New York now, and I’ve told them, “You all need to have your papers with you at all times. If anything happens, let me know.”

And even getting a driver’s license, I have installers who drive all over New York in vans. One of them can’t get his driver’s license, which means he’s limited in performing his job. So I probably fall on the side of caring more about my employees, but also, because I have a smaller business. I’m not like Jay. I don’t have 100 employees, and I’m not like Paul. I think he probably has 40 or 50. Right now, I have eight.

Loren Feldman:
I think Paul’s around 25.

Liz Picarazzi:
Okay.

Jay Goltz:
Listen, the fact of the matter is, you can try to protect the employees. You can’t completely. And I would never personally say, “Oh, I would never take anything in consideration except for job performance.” There’s people who are with you through thick and thin, who you know will do anything for the company. And there are other people who you know are just clocking it, and they’re fine. They’re valuable employees, but we have every right to say, “You know what? This guy’s always there for me no matter what happens.” And same thing on the employee side. They have every right to be pissed about it if they feel like they’re not being, quote-unquote, treated fairly, or whatever. Okay, they’re not wrong, but it’s not that black and white in a small business.

Loren Feldman:
Shawn, did you have something you wanted to say?

Shawn Busse:
Yeah, I’ve thought a lot about this question, and I really enjoyed reading on the Slack channel some other perspectives on this, especially from folks who felt like they were on the short end of the stick in these kinds of situations.

Loren Feldman:
Since you said that, Shawn, can I read you one of those responses. I think this is what you’re referring to. One owner wrote, “Let’s call it what it is. We leaders get blinded by our love for individuals and the mistaken notion that we are responsible for their well-being. When this happens, our decision-making moves away from doing what’s best for the organization and towards playing God, determining, quote-unquote, fairness and other esoteric outcomes.” Obviously a very different perspective.

Shawn Busse:
Yeah, and she also talked about absolute inequity, where early in her career—

Loren Feldman:
That’s someone else, by the way.

Shawn Busse:
Oh, that was somebody else. But, yeah, favoring certain employees because they had families over employees who didn’t have families. And I was reminded of a friend of mine years ago who had chosen not to have kids, and she worked in an industry that was predominantly female. It was in speech language pathology, and just the frustration she had where, kind of a revolving door of coworkers who would go on maternity leave and then she would have to do the job of two people while they were out. And she got no more additional compensation for that. So essentially, it was this two-tiered hierarchy within the company.

And it is tough, because we do have even policies that favor certain groups over other groups. So that idea of it being entirely objective, what’s best for the business, is actually not true. We say, “Hey, it’s important to have maternity leave or paternity leave.” Or more recently, we’ve started to recognize that care for family members who are dying or disabled is important. And so we want to allow that benefit. So it’s difficult, because we have moved the world of social well-being into the business world, and that gets messy.

Jay Goltz:
The word “fair” shouldn’t be entered. There is no fair. Life isn’t fair. And the guy that said, whoever that was you read about, who said “playing God,” you know what? We’re human beings. If there’s someone that works for you for many years, who’s been extremely supportive of the company, I don’t think that’s playing God. That’s taking care of people who have taken care of you. So I don’t completely reject what he’s saying, but I half reject what he’s saying. It’s not black and white. And it’s difficult.

Loren Feldman:
I think one of the points he’s making, Jay—and I’d be curious to get your reaction to this—is you can’t have perfect vision into your employees’ lives. You can’t know for sure who’s dealing with what. You may know a lot, but you could also get it wrong. That’s a risk, too.

Jay Goltz:
How about the most—this sounds like a good thing, but—the 401(k) matching. If you want to talk about fair: So the person who makes the most money, who’s got the spouse that makes a ton of money, maxes out their 401(k), gets all of the benefits of the match. And the guy or the woman at the bottom, who’s making $46,000 a year, that’s just trying to put food on their table, has no savings whatsoever, that person gets no match. The 401(k) match is the most inherently unfair thing that’s ever been come up with. But people do it.

Shawn Busse:
That’s a good point.

Jay Goltz:
The people who need the money the least are getting the benefit, and the people who need the money the most are getting nothing. And I have a company—I’ve got the math in front of me. Half of my people aren’t in the 401(k) at all, and it bothers me.

Shawn Busse:
I guess one thing I could offer, maybe that’s helpful, is when we were facing the pandemic, and we’re like, “Oh boy, we’re in trouble here.” And it’s a hard decision: Are we cutting individuals? Are we cutting everybody across the board? We had built, I’d say, a pretty strong relationship within our culture, to where we went to the team, and we said, “Hey, does anybody here want to sacrifice?” And we actually had quite a few people raise their hands, and say, “Hey, you know what? I could work three quarters-time. I could work half-time. I could take the next month off.”

So that’s something that we were able to do, I think, because we’re a small business, because we had really fostered a culture of care for each other. I think it gets harder as you get bigger, but that idea of not being by fiat, not one individual’s decision, that worked for us. I don’t know that that works for everybody.

Jay Goltz:
It’s very tricky. It’s not black and white. And like I said, two people can be right. The employee could be right that they’re not being treated properly, and the employer could be right that they have a right to do what they want—to some degree. And it’s very tricky.

Shawn Busse:
It’s one of these ethical dilemmas for which I think some people feel very ardently, “Oh, you have to be objective.” But like the idea that there is objectivity is kind of a challenge to begin with, as we’ve illustrated with a few different examples.

Loren Feldman:
I think it’s important to think about the various possibilities and ramifications of any course of action here. So hopefully we’ve helped some people think it through, even if we haven’t come up with a definitive answer.

Jay Goltz:
At the end of the day, it’s about what you can live with.

Shawn Busse:
Yeah.

Loren Feldman:
My thanks to Shawn Busse, Jay Goltz, and Liz Picarazzi. A lively discussion, I appreciate all of you guys sharing. Thank you.