Economic Uncertainties and Small Business Hiring
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Joe Wall (00:00):
I think the other, you know, kind of noteworthy data point from our survey was that we, you know, we always ask, are you currently hiring full time or part time employees? And that number for the first time really took a tick down. So it's only half 50% on the dot say they are currently hiring full time, part time employees.
Speaker 2 (00:17):
Welcome to Paychex THRIVE, a business podcast where you'll hear timely insights to help you navigate marketplace dynamics and propel your business forward. Here's your host, Gene Marks.
Gene Marks (00:35):
Hey everybody, it's Gene Marks. And welcome back to another episode of the Paychex THRIVE podcast. Thank you so much for being with us and watching us or listening to us. However you're getting this information, we have back with us Joe Wall, a longtime friend of the podcast who is the Managing Director of Government Affairs at Goldman Sachs. Joe also runs the 10,000 Small Business Program that Goldman Sachs has been doing for a number of years.
Gene Marks (00:59):
It's an awesome program that has helped countless small business owners learn how to run businesses and get their feet on the ground and even grow their businesses as well. So Joe, first of all, thanks again for joining us. For those that don't know you or of you or of the 10,000 Small Business Program, talk to us a little bit about what the program is all about.
Joe Wall (01:20):
Sure. And thank you, Gene, for having me on again.
Joe Wall (01:24):
So, just by way of background, 10,000 Small Businesses was launched a little over 13 years ago and it is probably best described as sort of like a mini-MBA curriculum that is taught at community colleges across the country. It's about roughly 100 hours of coursework, so it's a big commitment for the business owners and is taught over the course of a few months. And so it's a rather intensive curriculum. And the end goal, which I think just about every business owner I speak with finds hugely beneficial, is they have to come up with a growth plan for their business. So unlike when you go to business school and you're studying a McDonald's or an Under Armour, you name the company and you're analyzing them instead of analyzing another business, you're very introspective and analyzing yourself.
Joe Wall (02:16):
And so we obviously measure the businesses after six months, after 18 months, after 30 months. And we've seen really good success just in terms of job growth, revenue growth. And now we have 13 years later, about just over 14,000 businesses across all 50 states that have completed the program, we actually just launched in the last couple of months, a rural component to the program. And so we launched in Bismarck, North Dakota a couple of months ago, and we actually just launched in Arkansas this past Friday. But we'll be expanding in addition to those two states, to about 18 other rural communities over the course of the next five years and investing roughly 100 million of our program into those rural areas that are often underserved.
Gene Marks (03:07):
Okay, so we're going to get to your press release in a minute because we are going to talk about small business environment. But I got to make sure that I'm clear on some of the things about this program because it's 13 years that you guys have been doing this. Goldman Sachs is an investment banking firm. When I think of Goldman Sachs, I think of you're doing deals with some of the largest companies in the world, not necessarily mom and pop small businesses. I talk to so many other brands and corporations that they do little programs or campaigns to help small businesses.
Gene Marks (03:43):
It turns out to be nothing more than sort of a marketing thing, and they don't last very long. This is 13 years you guys have been doing this like tens of thousands of businesses through here. Why? Is this just a philanthropic exercise for Goldman Sachs or is there another reason why the company is so committed to this program?
Joe Wall (04:05):
Well, I think when the firm and this predates me, but when the firm was thinking about a way to give back to the community, way to engage in the community, I think they realized that small businesses are often, in fact, in most communities. I mean, I'm from Omaha, Nebraska, and Omaha is much like a lot of Midwestern communities. Small businesses are kind of the core. And to that regard right there, they are not only serving the community from a commercial perspective, but they're also sponsoring the Little League team and know, giving the teenagers in the community a chance at their first job. And so, they give back so much more than just the commercial aspect of what they're so I think we realized that in order to really make a material difference to the economy, this was a really thoughtful and comprehensive way to do so.
Joe Wall (05:02):
What differentiates our program from a lot of the others, right, is that it is like a tangible resource and that you're getting a core curriculum, but then you're also part of what is a pretty powerful alumni community. We've done a couple of big kind of national summits. We did one in 2018, one last summer, where in both instances we had over 2000 small business owners from just about all 50 states come to DC. And just sort of that organic nature of the community and the networking component that comes with that is also incredibly powerful. I think roughly about 86% of the businesses that go through the program end up doing business with at least one other graduate of the program.
Joe Wall (05:45):
And so just that sense of community and then the alumni engagement component is also, I think, something that makes it a little bit more unique and different than others.
Gene Marks (05:56):
And I want to point out as well that whereas a lot of companies, they do things for startups and freelancers and entrepreneurs, which is great, and all that this is a program that's really kind of directed at more established businesses. When I mean more established, I mean, they might have been around for a little bit. In fact, that might even be a criteria to get into the program. Right?
Joe Wall (06:16):
Gene Marks (06:17):
Your goal is to help them grow, not to scratch, right?
Joe Wall (06:20):
Correct. Yeah, it's exactly right. In terms of the application, you have to be an existing small business, been in business for a couple of years, have more than one employee, and meet certain revenue and other types of benchmarks. And it's a comprehensive application process. There's kind of three stages to the interview process to get into class, and so it's something that we take seriously, but also our academic partner, Babson College, takes very seriously.
Joe Wall (06:49):
And I think that it's also what's made the program special. We're also very proud. We have a very high graduation rate. 98% of businesses that enter the program graduate. And so we also want to get a sense for how committed the business owners are, because it's a big time commitment.
Joe Wall (07:06):
And we realize business owners have their business. They have families, they've got kids, they've got a lot of things tugging at their time, and this is a real commitment. So that's part of the application process is just making sure that this is a good fit for them at this point in their lives. And maybe it's not now, maybe it's three months from now when their wedding is passed, or they have some big life event that's that's complicating things.
Gene Marks (07:31):
Yeah. And I got to imagine I mean, you'll have challenges. I'm sure you said you've expanded to rural areas. I'm going to continue to do that. Those guys are busy, man.
Gene Marks (07:39):
During the day, they're rural and AG businesses, businesses in rural parts of the country. You know, coming from Omaha and, you know, the outskirts, once you get 1015 miles outside of the city, it's a challenge and a struggle. And to pull yourself away, to go to these classes and commit to this and prepare and attend the events and all that, it's a big commitment that people have to sign up for.
Joe Wall (08:03):
No doubt. Yeah, it is a huge commitment. But I think most of them, almost all of them would say, Gosh, it was well worth it. It's just getting to know other businesses. I think what we have found, right, is that most of these businesses, when it comes to talking about some of the difficult challenges they face in the business, don't feel like they can talk that with their fellow colleagues at work or their families, even, in some instances.
Joe Wall (08:31):
And so just having this community and this group in their class that they feel like they can talk about some of the more challenging things, the more uncomfortable things that they may not otherwise be comfortable talking with others about, it can become sort of a therapeutic session in some respects.
Gene Marks (08:51):
Yeah. Listen, it's more power to you. I think it's great. It is really great. And again, it's 13 years in and I'm sure many more years to go.
Gene Marks (09:00):
So it's just an impressive program. All right, so as part of what you do and as part of what the 10,000 small business is about, you guys do studies and research and surveys in the small business community. And an important one just came out the end of October where you surveyed, I think, more than 1200 small businesses and asked them about the credit environment. And I was wondering if you can talk a little bit about the findings of that survey.
Joe Wall (09:34):
Yeah, so we surveyed, I think, October 9 through 12th, kind of the front half of October and just released it in late October. And what we found, and we really kind of tried to dive deep into the capital space, just given that that is particularly in this environment with interest rates and banks. In the aftermath of what occurred in the spring. With SVB and Signature Bank have definitely tightened a little bit. We wanted to get kind of a real time assessment of the capital environment.
Joe Wall (10:06):
So we asked a variety of different questions. I'll just kind of give a top line overview. So only 29% of small businesses say they can currently afford to take out a loan, just given the interest rates and what they're experiencing. And from their perspective, if access to capital continues to tighten, 85% say it's going to impact their growth forecast in terms of what that can mean. Two thirds say they would halt expansion plans.
Joe Wall (10:35):
42% say they may have to lay off employees or stop hiring. 21% say they may have to close their business. What's kind of, I think, noteworthy, just to paint the picture of how tough it is right now, we asked the small business owners, thinking back to the last four years, 20, 20, 20, 21, 20, 22. And, of course, this year, 2023, which has been the most difficult for your business, and about a third, 31%, say, this year, 37% said 2020, which, of course, was the height of the pandemic. We also asked just sort of diving deep into kind of the fundamentals 33% have applied for a loan or line of credit within the last year.
Joe Wall (11:17):
And we then asked, okay, well, did you get full funding, partial funding, no funding. 41% of those that applied got full funding. But if you look a layer deeper and look at black business owners, for example, black business owners applied at a much higher rate. 43% sought capital in the last year, and only 26% of them received full funding. Right.
Joe Wall (11:40):
So there's a real disparity that we're seeing just in terms of the capital space. We also asked a question which we have not asked before, which was where did you seek capital from? And they could have selected multiple. Right. Because some of them are applying from a variety of different sources, but 56% said small regional banks, 43% large or national banks.
Joe Wall (12:02):
Think of Citi, bank of America, et cetera. 27% said online lender, 17% said a finance company, 15% credit union and 13% CDFI. The other thing we asked is do you have an existing loan? About two thirds of businesses have an outstanding loan or line of credit. 35% of those loans are variable interest rates and about just over 60% are fixed.
Joe Wall (12:29):
So that was kind of, I would say, the capital lens right now in terms of how small business owners are feeling.
Gene Marks (12:38):
So just to back up the data that you had so I wrote a piece in The Hill. It was the end of August, so it was a couple of months ago. But if you go onto the St. Louis Federal Reserve site, which it's called Fred, it has this unlimited amount of statistical data that you can query on yourself, build your own graphs and charts just to complement what you have said. Now, this is through the end of August and your survey happened in October, but I found in one chart that according to the Federal Reserve there 49% of banks were saying that they have tightened their lending to small businesses.
Gene Marks (13:16):
49% compared to 22% just a year ago. I'm looking at the article that I wrote right now. Banks are also they have tightened down credit card loans as well. And we know that credit card financing is a very popular way to manage your cash in a business. And then finally total the commercial and industrial loans, Joe, they've been trending down like over the past six months.
Gene Marks (13:41):
And that's not just small businesses, but that's also big businesses as well. All of this is the impact of increased interest rates. And to me we live in a capitalist economy and when I see that capital is there's less of a demand for capital, it concerns me about the future and whether or not that means potential recession or anything like that. What are your thoughts on all of that data as well?
Joe Wall (14:10):
Well, I think you're absolutely right. Whether it's the St. Louis Feds data or other kind of independent data, I think it's all kind of painting the same picture. And I would know one thing in particular. We just launched an advocacy campaign around this issue and it's a bit in the weeds, but I think for the small business community it could be quite impactful.
Joe Wall (14:32):
So by way of background, the Basel B-A-S-E-L not Basel Committee, which is the international sort of Capital Standard Committee and this is sort of the final layer of it's called the Basel Three Endgame. But they proposed raising capital standards for banks and then the Federal Reserve in late July kind of stamped their proposal and even kind of intensified it, gold plated it, if you will. And so what this would mean is for the top 27 US. Banks, they would be required to carry roughly an additional 20% of capital, right? So one of our banking peers, their CEO, said the easy way to think about this is for every 1% in capital extra we have to hold, that's 150,000,000 in capital.
Joe Wall (15:22):
That's not going to go out the door. So you times that by 20. That's 3 billion just from one institution. That's going to be kind of locked down, right. So we're very worried in a time where credit is tight that then layering on these new capital requirements on banks is going to have a real negative impact on lending to the small business community.
Joe Wall (15:46):
And so, we just launched a campaign last week which is branded tell the Fed to Stop the squeeze on Small Businesses. That it's. Including digital ads, advertisements, and then we're also going to submit a formal letter, comment letter, to the Federal Reserve from our small business community. But it's one of those issues which people always say, right, there's a lot of things that happen in DC that the average person has no idea is going to have an impact on them or their business is going to have. And this is one of those kind of somewhat antiquated issues, right, that is for sure difficult to understand and digest, but is going to have sort of real life implications, not only small businesses, but also consumers.
Joe Wall (16:31):
If you're trying to get a mortgage or if you're trying to take out just a personal loan, there's going to be real consequences to this.
Gene Marks (16:37):
It's funny. Listen, I always like to look at both sides of an issue and I kind of get it. The 2008 to 2010 banking crisis, it's still relatively fresh. I know that was like 13 years ago, but for a lot of people there's a lot of memories of it. So I get it that the government wants to say, listen, we need to make sure there is enough reserves out there.
Gene Marks (17:00):
We don't want that happening again. We want to make sure there's stability, but there is a balance. And what you're exactly right, these requirements would make banks hold way more money in capital. And the first people that are going to suffer will be smaller companies, particularly those with less of a credit history or can't afford. The other thing that I'm seeing, and I don't know if you're seeing the same thing, is among my clients because interest rates are as high as they are right now.
Gene Marks (17:27):
They're eight and a half percent is the prime rate on average. Most of my clients are not paying one, two, three points above that, depending on their credit situation. So a lot of banks are revisiting the financings that are being asked for that they're doing with some of my clients and now saying, do these guys have the ability to pay this stuff back? Because interest rates have gone up like three times what it was a year and a half ago. And they're pulled back credit.
Gene Marks (17:55):
Sure. And I don't know if you're seeing the same thing.
Joe Wall (17:57):
Yeah, 100%. Yeah. To be honest, some of our small businesses that I would say are on the high end of successful and growing. And even so, and I'm just like taking aback, they are struggling mightily to access credit and where they are able with an interest rate that just doesn't even make sense for them. Right.
Joe Wall (18:19):
It's 100% prohibitive so. Yeah, I think that's the picture you painted is absolutely accurate.
Gene Marks (18:26):
So what do we do as business owners? I was just talking to somebody this morning about this very issue, and I was trying to remember back when I was a kid I don't know how old you are, but when I was a kid, it was like in the late seventies and eighties. I was still like in high school. But I kind of remember when interest rates were like 18% or something more than twice what they are today. My recollection is, and this is all anecdotal is that because my father was a CPA, so we had his clients, the businesses, they hobbled along, they just didn't grow.
Gene Marks (19:02):
I mean, they just weathered the storm as it was for a number of years until interest rates came back down to normal. And do you think that's what we're looking at now with a lot of your participants in the 10,000 Small Business Program? Like because rates are as high as they are and credit is being restricted as it is, that we're looking at a couple of years of businesses, frankly weathering the storm as opposed to growing for the most part.
Joe Wall (19:28):
Yeah, I mean, it's a great question. I'll pretend to be an economist by any means. I mean, obviously we had really good GDP numbers, right, last week that came out. I think there's kind of mixed views on I think the consensus is that the Fed stays high longer. Meaning but they don't probably hike, but interest rates stay where they are for a little bit longer than maybe than folks had hoped for anticipated.
Joe Wall (19:52):
But to your point, right, I don't think things are necessarily going to, from an interest rate perspective, improve in the near term. And so for a lot of businesses, I think they've just got to try their best to kind of weather the current environment and just have to prepare for the fact that things may not get better. Hopefully they don't get worse, but we may just be kind of in a similar period where we are today, a year from now. But a lot can happen between now and next November, that's for sure.
Gene Marks (20:36):
That is true. And it doesn't preclude people from making investments. Return on investment is still return on investment if you can prove it, right?
Joe Wall (20:35):
Gene Marks (20:36):
Joe Wall (20:37):
I think it's just for the businesses, I think it's just time flies, right. We all forget. But I mean, just the fact that they've had to weather kind of a once in a lifetime pandemic then inflationary pressures unlike anyone has really seen in their lifetime and now the interest rate climate the way it is. So it's a lot right, when you sort of just take the cumulative impact of everything that's happened. But that said if you're still around today and still doing pretty well it's pretty remarkable right?
Joe Wall (21:10):
I mean the level of stamina some of these businesses have is nothing short of remarkable right? I mean they're just incredibly resilient.
Gene Marks (21:20):
They really are and they keep coming.
Joe Wall (21:21):
Yeah and that's what makes them special. We've seen a lot of big businesses fall during this time too but a lot of small businesses just given their ingenuity and grit, they find a way.
Gene Marks (21:33):
So you're a corporate guy. You've been with Goldman Sachs how many years now?
Joe Wall (21:38):
Almost 14. Long time.
Gene Marks (21:40):
That's like a lifetime. Nobody is at a job for 14 years. And where were you before Goldman Sachs if I can ask?
Joe Wall (21:47):
Yeah, of course. I worked at a trade association representing independent insurance agents for about a year. So that's basically the non-Allstate non-State Farm kind of insurance agent world. And then before that I worked in politics for quite some time so I was at the White House, worked on presidential campaign, Capitol Hill. So I sort of did a brief tour in my younger years.
Gene Marks (22:10):
So you've seen it a lot and you've seen both sides. You've been involved with small organizations, you've been involved in government, you've been involved now in large corporations. I got to ask with your involvement with the 10,000 Small Businesses, any types of businesses or any type of industry really strike your fancy? Not that you're not going to spend the rest of your years with Goldman Sachs, but if next week you decided to turn in your notice or whatever and you were going to be your own entrepreneur, I'm kind of curious out of all the different people that you're talking to and all the participants in your program, I'm kind of curious if you're driving home. And I'd say that's a pretty good business to be in.
Joe Wall (22:49):
Yeah, it's probably not the best business to be in but they seem the most happy. I would say the business owners that have bakeries, restaurants, they just seem to thrive off of the human element and just serving and seeing the smile on their customers faces every day and having that routine clientele again. Those are very tough businesses to run. Right. We all know that getting into those businesses is incredibly difficult but they seem to be the most happy and the most just rewarded on a routine basis.
Joe Wall (23:25):
So despite the fact it's very difficult, I think if I were to quit Goldman Sachs tomorrow I don't know what type of a restaurant or bakery but something along those lines probably.
Gene Marks( 23:43):
Listen, I don't know you that well. It's one thing to serve the customer and get joy and passion out of that. And I totally get that. But at some point, you got to make money, right? True.
Gene Marks (23:53):
And then if you're only like one, you're tough.
Joe Wall 23:57):
Maybe in retirement. That's what I'll do for fun.
Gene Marks (24:00):
Yeah, it would be a retirement project that you would do that hopefully break even and keep yourself out there in your old age.
Joe Wall (24:06):
Gene Marks (24:07):
Well, Joe, before I let you go, any final thoughts on the economy and the environment that small businesses are dealing with right now that you think that we didn't discuss?
Joe Wall (24:19):
No, I think the other kind of noteworthy data point from our survey was that we always ask, are you currently hiring full time or part time employees? And that number for the first time really took a tick down. So it's only half 50% on the dot say they are currently hiring full time, part time employees. That was down from when we surveyed in April, it was 59. When we surveyed in February, it was 59.
Joe Wall (24:43):
So that's a noteworthy decline. But at the same time, when we ask that follow up question, are you finding it difficult to recruit full-time, part-time folks for your open positions? The number is the same. So it's like 78%, 79% very consistently say it's really tough to find. Despite the fact that the job market is definitely softening a bit, it's still really tough to find qualified candidates.
Joe Wall (25:09):
So I think that's another real conundrum that whether you're talking to a business in the Midwest, the Southeast, the west, it's the same, and it's just incredibly difficult. And so I think one of the natural in addition to wage, businesses, I think, are really having a tough time competing on benefits. Right. So when they're competing, it's typically not them versus the small business down the street. It's them versus an Amazon, a Walmart, Google, a big, big company that obviously has very generous benefits.
Joe Wall (25:42)::
And the benefit split, I think, is one that it's just very tough for small businesses to compete. And so I think that's an area just from a policy making perspective, that there's a lot of room to grow. And then the final area I would say we've been very focused on is the Small Business Administration has not been reauthorized by Congress since 2000. Right. So it's now been a little over 23 years since that agency has been sort of fully looked at by Congress.
Joe Wall (26:12):
And so that's kind of our big legislative push this year and into next year is to have Congress do that for the first time in well over two decades. And we've seen some real progress on the Senate side, which is great, but there's still a ways to go. But we're hopeful that that can get done in the next 13 months or so before the end of next year.
Gene Marks (26:35):
I'm a fan of the SBA, but there is a lot of room for improvement, and sometimes I feel like they get misdirected in some of their activities that could be better used to serve small businesses. So I'm glad to see that push. I think that's a really important yeah.
Joe Wall (26:47):
And it has nothing to do it's not that by no means is it their fault. It's Congress's duty, and they've just neglected it.
Gene Marks (26:55):
It needs to be done. It definitely needs to be done. And it's interesting. Another point on your employment. I noticed the same thing with my clients as well.
Gene Marks (27:02):
I know the government reported last month there's still, like, a record number of job openings that are out there. I don't know if you see the same, but I see in my clients that they have openings, but it's not as if they're vigorously going after those jobs. We could really use an extra customer service person here, but until we find that right person, it's not like we're in dire need.
Joe Wall (27:24):
Yeah, no, I think that's right.
Gene Marks (27:26):
So I'm seeing a lot of that. And listen, my best clients, when they compete with larger companies, I mean, everybody's got a little bit of entrepreneurial in them. And working for a small business, it does give you that little sort of entrepreneurial spirit. And the clients that I know that have done really well, they offer profit sharing plans, they offer more flexibility. It's a way to liaise with the owner of the business, to give advice and help them run.
Gene Marks (27:50):
I mean, there's a lot of sort of intangible benefits to working for a smaller company that I've seen some of my smarter clients have leveraged, and that's helped them to compete against larger companies.
Joe Wall (28:01):
Yeah, that's absolutely right. That's a great point to make.
Gene Marks (28:05):
Joe Wall is the managing director of government affairs at Goldman Sachs. And Joe, you're like, the person in charge of the 10,000 Small Business program, right?
Joe Wall (28:14):
Yeah, so I run the advocacy component, which is called 10,000 Small Businesses Voices, and then a colleague of mine runs the programmatic side of it and works very closely with the community colleges and all that goes into that, which is a lot. And so, yeah, we've had a lot of continuity, which is great, and have a great team running it.
Gene Marks (28:35):
Good. Well, it's a great program, and I want to wish you the best success with it. Thank you. I hope you stick with it for a while. You guys are doing really, so thank you.
Joe Wall (28:42):
Thank you, Gene. Take care.
Gene Marks (28:43):
Do you have a topic or guests you would like to hear on THRIVE? Please let us know. Visit PAYX.me/thrivetopics and send us your ideas or matters of interest. Also, if your business is looking to simplify your HR, payroll, benefits, or insurance services, see how Paychex can help. Visit the resource hub at paychex.com/worx that's W-O-R-X. Paychex can help manage those complexities while you focus on all the ways you want your business to thrive.
Gene Marks (29:18):
I'm your. Host Gene Marks. And thanks for joining us. Till next time. Take care.
Speaker 2 (29:20):
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