233 - Political Pressure on Entrepreneurs: Should You Take A Stand?

0:00I really hate it where they're like, what do you think? Do you think Joe Biden is a lizard person or not? Or like, do you think that trans women are women or not? It's like, dude, I'm just, I'm trying to run a B2B SaaS company, man. But why does it seem absurd? I think people are looking to leadership as these people lead them in their life. I reject that I lead any of these people in their life. I just flat out reject that. Your church leader, your friends, your family, your spouse, your kids. That's who I hope leads you in your life. If I'm leading you in your life, we've already got problems.

0:29I actually had an interview with someone fresh out of college and she wanted 120K. That's what a lot of the Gen Z are expecting. So I think these business owners are taking a pause saying, OK, well, hold on. Let's look into what AI can do for me instead of hiring an employee that costs double what it cost 10 years ago.

0:47Happy Friday and a quick heads up on today's episode. It's a little different from my usual content. I'm trying something out. It's a weekly roundtable. Today I'm joined by Chris Munn, who's the owner and operator of Pavago, which is a healthcare staffing company, as well as a commercial cleaning company based in Florida. I'm also joined by Trenton Hughes, who's the founder of Tribe, which is a peer group for hundreds of entrepreneurs around the country. The idea is that this roundtable will allow us an opportunity to talk about what we're seeing in the small business world and entrepreneurship in general.

1:15We recorded this one on September 11th, which was the day after Charlie Kirk was assassinated. So it's a little bit heavier. We talk openly about it in the beginning. I promise you won't be triggered by any of the stances, but we kind of dove into whether or not business owners should take political stances when employees and customers are expecting it. We also dive into the Fed rate cuts. We also talk about what that means for buying and selling businesses, as well as how AI is changing the hiring landscape. So this is an experiment. I think you're really going to like it, but I would love to hear from you.

1:46So drop your comments below and let's get into it. Yesterday was a weird day for me. to see Charlie Kirk got assassinated. And all I could think about was the fact that this 31-year-old young man, whether you agree with him or don't agree with him, was murdered in front of his wife and his two kids. And the fact that they're going to grow up without a dad. There's just like a visceral reaction to the fact that somebody has gotten so animated and so angry that they choose to go to violence as opposed to debating ideas, which is kind of what our country was founded on. And I've also been thinking about kind of what this means for the next day, week, month, year, because I go onto Twitter or I go onto social media and it's all anybody is talking about.

2:36Some people are like, well, congratulations, you just radicalized me. Some people on the left are celebrating the fact that this guy was murdered. Why does there seem to be so much more political violence? We had an assassination and kidnapping plot against Gretchen Whitmer in Michigan. We had the president survive an assassination attempt. State legislators in Wisconsin that were murdered. Now Charlie Kirk gets murdered. It's like, what was going on? It feels like there's a visceral reaction to this. And I've seen a lot of entrepreneurs in particular like taking a stand. Like employees want to see their owners or entrepreneurs issue a message or take a stand.

3:16But then you see the backlash where somebody does quote unquote take a stand and Bud Light is boycotted because they hired this Dylan Mulvaney or the MyPillow company aligns really closely with Trump. And I think a lot of entrepreneurs are probably sitting there like not just scared about the future for themselves and their family, but also like, how do I, how do I navigate these waters as an entrepreneur? How do you navigate these waters moving forward? I actually didn't really know who he was, but seeing him as a dad and a husband and someone that was just trying to have conversation, and controversial or not really hit me.

3:48And I think that one of the things that was striking is yeah, social media was hard to be on yesterday because of that. And they kind of evolved quickly from shock to uncertainty to anger. A lot of business owners that I know in all kinds of different businesses, almost every single person seemed to come out and say something. But what surprised me was to see how harsh some of the stances were. You've just turned me into a radicalized right or some worth celebrating. Back in 2020, we had Black Lives Matter and we had some pretty heavy political movements happen. Back then, we started to see businesses take stands and business owners take stands on the different sides.

4:32And it really polarized and either drew people in or pushed people out. And I can go into some stories myself of some things that we dealt with as business and as a business owner for employees and customers when they wanted to see us take stands on certain things. Especially with companies that are like founder-led brands, right, where like the founder is out. And almost every company needs to be that or is that. Like there's a CEO or a founder or someone at the top that really is the face of that company. Almost all of these people have opinions. Whether or not they express those opinions is a different thing, but it feels like we're about to see that expressed from here.

5:12Chris and I have talked about this a lot. On the one side of things, I do want to see someone who's a leader stand up and say, this is what I think or this is what I believe. But then the flip is I love talking to people of all different walks of life. I don't like the idea of siloing into, well, I just go to Twitter for my conservative takes and I go to Blue Sky for my liberal takes and I go to this business for conservative stuff and that business for liberal stuff. I think that stuff is bad for our country. But I mean, Chris, you're incredibly thoughtful about the stuff. You read a ton. How do you think about just messaging around this?

5:51Or like, how are you addressing it with your teams? I just go about business is business. And to me, like what happened yesterday really has nothing to do with that. There's never been a time in this country that we haven't been violent. People will say, you know, oh, this is, this will radicalize me. I don't believe it. And that has nothing to do with my businesses. So I have very strong opinions about things that happen, but I don't really share. If my team asks, I'll share it with them. I don't make it a secret, but I don't lead with that. It's not my job. People on my team can vote for who they want to, believe who they want to, watch what YouTube videos they want, just come to work and do a good job.

6:33Have you set it up that way? Has that been just your company culture from day one? Yeah. Yeah. I mean, I think we get aligned around tasks and goals, right? And those tasks and goals usually have nothing to do with what's going on in the cultural climate. What do you do if you have an employee who's super political, posts a lot, talks with other people a lot about it? What do you do there? I wouldn't discourage it, to be honest. If people want to be political in the workplace, I don't discourage it. It's just not my thing. I feel like maybe I'm libertarian in that regards. Like if you want to talk politics at work, it doesn't make me a difference.

7:10As long as you don't make people feel ostracized or discriminated against. What are you guys doing in your business? Like Trin, you've been in some of these. Like have you had employees that want you to take a stand or be thoughtful about that stuff? Yeah, not currently. But I've had two different businesses where I've had this type of thing come up. And one of them was George Floyd and the Black Lives Matter movement. we were like over a thousand employee company and we had all hands meetings with over a thousand people on those meetings and we have an open forum in that and they can submit questions and so we had dozens of questions of what our stance was on everyone can see it we just said we're supportive of black lives matter and you know completely against any sort of police brutality and it was just the the stance that made the most sense to us and was what true to what we felt Did you feel pressured into making that statement at all?

8:07When everyone is saying, it was for sure on everyone's mind at that moment. It was a very big moment. You didn't feel pressure in the sense like you didn't believe the words you were saying. You just felt like, oh, I have to say something because people are asking for it. We came at it with conviction of what we believe. But yeah, we did feel pressured to say something. And this is a point where almost every business I felt was saying something as well. But we were in a meeting where they're asking us to say something. I did have one more instance happen. I've known a bunch of business owners during that time who made statements that didn't agree with the statements they made.

8:37They were just like, oh, it seems like we should make a statement about this. And then I'm like, dude, you've never been super animated about these types of issues. To me, it felt disingenuous. It's like, you need to be able to release a statement that is genuine to what you think and what you believe. It's probably worse to release something that you don't actually think or believe. because over time people just see the inconsistency. And I will say like that was a very emotionally charged moment for a lot of people. It was for me. And there's different points where I have felt like, man, I would like to take bigger stances here, but I also understand like business is business.

9:16And this is, these do live separately. Most times I did have one more. It's just hard not to say anything. Yeah. And I think that's what a lot of people are feeling right now. They're saying like, I need to say something. And I guarantee over the next weeks and months, we're about to see a lot more people take pretty harsh stances one way or another. It's the leader's job to acknowledge that people are being emotional, right? Like it's an emotional time. So whether, you know, Trump gets shot or like if we, God forbid, a president died or something, really wouldn't matter what side of the aisle you are on.

9:50It's like this is an emotional time for people. And I think you can make the space to acknowledge that. I don't believe that because, and maybe this is the idealization of business leaders in America, like why are we even asking what the business leader thinks? But it's not my job to be the spokesperson for our political stance on our business. Like the business doesn't have a political stance. I have a political stance, but my political stance has nothing to do with the business. But I will acknowledge that if people come to work and are feeling like, man, it's just a tough day, like because of X, Y and Z, what happened?

10:24Even if that doesn't affect me, I think we should make the space to acknowledge that and acknowledge that people are going through something and maybe feeling some kind of way and maybe just want to talk about it. Right. To me, that that is the leader's job. It's not my job to be the voice of my opinion. I just look at the data and it's like Gen Z and millennials are two to three times more likely to want to hear their leaders say something about what's going on. Right. And or take a stand, quote unquote. For us, it was a little bit different than your experience, Trenton. We didn't have a thousand employees, but we had between 100 and 200 when all of this stuff was happening in 2020.

11:02But we had to look at it. What do we talk to people about? It's our core values and our core values were among them empathy. Right. And so we, we talked about it from that lens where it's like, look, there's a lot going on. Yeah. We empathize, please be kind, respect each other, et cetera. In the instance with the vaccine mandate and we were a healthcare company, it was like Medicare is mandating this for us. If you can't accept that, we will help you exit the organization. But like, what were we going to do at that point? We weren't in a place to take any type of stand against that. But so anyway, I just think they're just hard situations to navigate because as a human, you want to react.

11:40But as a business owner, you're like, how does this affect things downstream? I had one more too that this was our influencer and sports agency. And we represented different influencers that had big amounts of influence, millions of followers. One of them was trans. and they were upset because this is a time where they felt like trans rights and LGBTQ rights were being really pushed to the limits. And they were upset that some companies were choosing to take neutral stances on this. And then they got upset with us for not advocating for them because of those neutral stances. We had to decide ourselves, do we want to stay neutral or not.

12:24A lot of our employees were LGBTQ in the entertainment industry. That tends to be the case. And then a lot of our influencers were as well. Of course, we are pro LGBTQ. We have tons of these people on our staff that are clients. But at the same time, we don't think that every business needs to be political. Businesses being neutral should be okay. Businesses shouldn't have to pick one side or the other. And so we kind of took that stance as well. Of course, we're supportive of LGBTQ, but we're also supportive of businesses not being political. And we ourselves are not necessarily going to be super political as well, because we're a business.

13:02We're not a political organization. And what happened is we lost that influencer. The influencer talked about it. We lost some more influencers, but I think most people understood where we're coming from. We definitely had some employees on our side that were LGBTQ that wanted to see what we were going to say as well. I think that they liked the way that we handled it, but it was a tricky one because you're right. I think your employees and even your customers sometimes want to know where you stand on things. And I'm a big believer in alignment though. Like you'll find the alignment with the people that align best with you.

13:36And if they need to see that you're political, then they're probably not going to align. And if you are super political and they align with you, then great. I think that that's where businesses need to do best. Do you think Joe Biden is a lizard person or not? Or like, do you think that trans women are women or not it's like dude i'm just i'm trying to run a b2b sass company man i'm trying to get you guys paid i'm trying to get everyone fed it not everything has to be political we don't have to agree on everything some of my closest and best friendships are with people that i don't agree with on a lot of things like why is that the top thing that we're identifying as if i was giving any advice here though having come from this and chris i think nailed it.

14:20Emotions are going to be high right now. And I think us as business leaders just need to be really thoughtful with how we approach this and approach politics in general, because it's going to have ramifications. And I don't know that that's the place of a business to get involved. And so I think it's best to really just come at it and think before we talk sometimes. I don't think it's bad. Look, if you're coming out and taking a stand, you're a business owner, and you want to stand for something like more power to you i just don't think that you should feel pressured into saying or doing something that you probably may or may not feel a certain way on because it's over the long run people are going to see an incongruence well that i mean whether or not you feel that way a lot of businesses and people are forced into it and uh and so what do you do with that and then you not taking a stance is also taking a stance that's why we get paid so much money as entrepreneurs though you know the book stops with the entrepreneurs, why you are the leader.

15:15And I mean, I think it says something about society that maybe there's a moral vacuum and now we're seeking business owners or business leaders for moral compass advice, which seems absurd to me, not the group that I would tag for. But why does it seem absurd actually? Because I think people are looking to leadership as like these people lead them in their life and maybe are the biggest influence in their leadership perspective for their life? Do you care if you had a manager or leader that you reported up to and they were one way or another, would you care yourself? I reject that I lead any of these people in our life.

15:51I just flat out reject that. So like your church leader, your friends, your family, your spouse, your kids, that's who I hope leads you in your life. If I'm leading you in your life, we've already got problems. But to answer your second point, I had a manager. I go first day, He tells me where he lived, but you know, I still work. I still work there. Like I, and obviously I'm not Jewish, but I still work there. And like, but I had an opinion of him. Sure. Like, would he be my friend? Probably not, but I don't mind working for him like that. That doesn't, I don't feel like I'm losing any of my morality by doing that.

16:28Yeah. He, like I say, he does not my leader, just my manager. And maybe it goes back to what Nick was saying. And like the values of the person will speak to this more than their political stances. You know, how do they treat you? How do they treat the others? If you're going to let one decision define me, like whether or not I responded the way that you wanted me to respond exactly in that moment, and then you leave, like I don't want to be around you. Like if you can't take the long arc of our relationship and see like, oh, he is thoughtful or oh, you know, and then weigh that against maybe, you know, how I do or don't take a stand, then you're not the type of person that I want in my company.

17:07You're not the type of person I want to work with long-term. I'm okay with certain people leaving. So I don't know. I guess I'm just kind of encouraging entrepreneurs who might be feeling a certain way or not. Like you don't have to do anything that doesn't feel right to you. Yeah. Or you don't have to do anything at all. Yeah. I'm super curious to see how this plays out over the coming weeks and months, especially with people going to their favorite social media platforms to continue to reverberate they stay off the internet that's the stay off the that's chris's moral of the story okay we had some other things that happened this week chris it looks like we've had a rate cut and i want you to kind of just go through what's going on right now and what does this mean for small businesses.

17:58Does the Fed even matter for small business? Yes. It matters a lot for small business. So a little background, we could start with like 2020 during COVID, rates were effectively zero, which means banks can borrow money at essentially no interest and then loan it to you at a small percentage higher than that. And low interest rates mean lower debt payments and debt payments go towards things like mortgages and business loans and car loans and all sorts of stuff. And then after COVID, we obviously had a lot of inflation and the Fed has tried to keep rates high to tame inflation, keep inflation in check.

18:41So now I think inflation is 2.9%, which the goal is always 2%. So I think we'll see rates get cut more aggressively when it gets closer to two, but it hasn't been two in a long time. So, Hey, I don't know if you remember this, but when we started this podcast, we entered into a social contract. I would spend time, energy, and money producing this podcast, interviewing these individuals and giving you insights into how to build, buy, start, grow your business. And you would like subscribe and leave me five-star review. Now, out of that, we both get to talk to really cool people and hear really cool insights.

19:15We both get a ton of value, but I just want to help you keep your word. So would you do me a favor? Will you go leave a five-star review for me on Apple or Spotify? It would really help. And if you want, even share this with a friend. We did have a rate cut in September, but we're still super high rates compared to the last five years or so, 10 years, 20 years, super high cuts compared to the last 20 years. That affects businesses in a few ways. So I think people going out to buy or sell businesses are seeing different valuations because of the debt service. If someone goes out and bought a business in 2015 and their interest rate was 5 % and now the interest rate is 10%, that can be tens of thousands of dollars a month in increased interest for that business.

20:05So what does that mean? That just means effectively, I can pay you less money, Nick, for your business than I could 10 years ago because I have to pay the bank a lot more. So Nick might be saying, hey, I want this multiple on my business. And now I can't pay that because I can't service the debt with the high interest rates. So there's a lot of political pressure to lower the interest rates because it will spur asset buying and selling again. But if we still have inflation that is from an economic standpoint, that is usually not a positive thing. So inflation needs to get in check and then hopefully rates can get cut.

20:45I bought a business in 2020 when rates were effectively zero. And when you go through the process of buying a business, you have to go through underwriting. And in order for the bank to give you money to buy that business, they've got to underwrite that business. And they use this almost universally, this one metric called DSCR, your debt service coverage ratio. What that means is if a business is doing$500 ,000 a year in profit, the bank wants to see at least, we'll call it 1.2 times the amount of profit as they do debt. So in this scenario, let's just make it easy. The max debt that they would lend is$400 ,000 on a business doing$500 ,000 a year in profit.

21:25And then we know the interest rate, we know the term, we know the amortization period, et cetera. With that$400 ,000, it's like a max amount that they'll loan. And so in that instance, when rates are near zero, they'll lend you a lot more money because the debt service coverage ratio is a lot better because you're paying less debt, right? Well, when the interest rate goes up, now all of a sudden, the amount that you can afford in debt to buy that business goes way down. And so what does that mean? Well, in the early days, in 2020s, the reason we saw asset prices go out of control is because we could get a lot of money from the banks because interest rates are really low.

22:00We've now seen asset prices contract because they raised rates significantly because people couldn't afford that debt service coverage ratio. And it has shown up in the data. So the SBA releases this data. In the last year, the amount of delinquencies on SBA loans has increased dramatically. I think it's like a 20-year high from where it's been just because these individuals who bought businesses kind of at the max of their scale, all of a sudden now because the interest rates are floating, interest rate goes up, payment goes up, they can't afford it. What happens? The bank forecloses on those businesses.

22:29We've definitely seen some of that happening right now. So for small businesses in particular, the SBA is really important, which I just talked about, lines of credit, but then also generally speaking in the economy, being able to hire, being able to find more workers. There's definitely a lot going on. So I am curious to see, though, what happens with the Fed because our unemployment has been historically low. We're still at historic lows, which is interesting because I still feel like when I talk to small business owners, I mean, Trenton, we talk about this in Tribe. it's not like they're out there saying like oh man the hiring pool is fantastic oh it's so it's so great like they're still complaining about finding good employees and you would think that would be the opposite if like unemployment was so low you would think that everybody's like in the spot that they should be doing a really good job but that's kind of been the opposite experience well asset and then this is the funny thing about the way the economy works asset prices have just been ripping, right?

23:28Assets are going up like crazy. So the stock market is all time high. I think the easiest way to think about this is housing. Everybody probably knows somebody who's like, dude, I bought my house for 450K and now it's worth 900K. And they think that's awesome. Not awesome. Not awesome. That's not awesome. And the reason that's not awesome is because when asset prices go up that much, the only winners are the asset holders. Everyone not holding an asset, everything is insanely more expensive for them. And so because things are so expensive for everyone else, I think that's partly why we see low unemployment.

24:11It's like, dude, I have to take a job. Everything is so expensive. Asset prices include groceries. They include cars. They include everything. So I think the economy is very interesting right now because it seems like for the asset owners, which unfortunately is a very small percentage of Americans, they're like, man, everything's up and to the right. And for people on the other side of that coin, they're like, dude, I can't afford anything anymore. And so I think you just really see a dichotomy and it's like a tale of two economists really. It's just some people are sitting here like, man, my house tripled in value and other people are just like, I'm never going to be able to afford a house ever again.

24:51real wages have stayed flat over the last five years but everything else food groceries fuel whatever has gone off like 20 yeah so you've got the same amount of money effectively but no buying everything's up yeah there's there's no buying power so it it is just really weird because at the same time you have 84 of entrepreneurs who say they're optimistic about the future 84 that's a that's a high optimism rate but they are in the asset owner class sure they are in the asset owner class. But at the same time, they're also in the business of hiring people. You would think they'd have a better pulse on how people are feeling out in the actual field.

25:28I don't know, Trenton, what are you seeing within Tribe? I mean, we talked to a lot of business owners and the jobs numbers that we're seeing come out and get revised are being revised down really low amount of jobs being created. What I'm also seeing is that business owners are taking a pause for the most part on hiring right now as they try to figure out how to implement AI into their businesses more. So like, you know, that's the worry that we hear employees talking about and people talking about, oh, AI will take jobs. I don't know that a lot of business owners for sure know how to do it yet, but I do know that they're looking at how they do it.