The Basics of Financial Security + Can American Small Business Compete Again?

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1:46Welcome to Office Hours with Prof G. This is the part of the show where we answer your question about business, big tech, entrepreneurship, and whatever else is on your mind. If you'd like to submit a question for next time, you can send a voice recording to officehoursofprofitamedia.com. Again, that's officehoursofprofitamedia.com. Or post your question on the Scott Galloway subreddit, and we just might feature it on our next episode. Our first question comes from a listener who emailed us. Hi, Scott. I feel like the basics of financial planning, adequate life insurance, disability insurance, wills, etc., go entirely unaddressed, even though the implications of getting it wrong can be disastrous.

2:18thinking of a young upper middle class family. What's a checklist of non-investing to do's to best set your family up for success, no matter what life brings. Huh. I'm not sure I'm going to be able to read you a checklist. Um, I just think there's some basics. I'm going to talk a little bit about the algebra of wealth and that is focus. What do I mean by that? Find something you're good at. Don't fall into this notion of pretending that your passion is everything. People mistake their hobbies for their passions. Find something you're really good at and devote the thousands of hours and the grit and the camaraderie and the kindness such that you become great at it.

2:56And the accoutrements of being great at something, relevance, camaraderie, prestige, money are all wonderful. So focus, find something you're good at and try to become great at it too. Live below your means. I call it stoicism, but it's really, it's living below your means. Oh, figure out a way to get money out of your hands before you even touch it. Automated savings, tax-advantaged vehicles, just every month. You're a millionaire or you're worth$3 or$5 million if you start saving$100 a month at the age of 21, right? And then by the time you're in your 30s, you got to save$600. And then if you wait till your 40s, you got to save$6 or$8 ,000 a month.

3:30So starting early, right? Living below your means. Being rich. The way to wealth isn't making a lot of money. It's making more than you spend. My father died a near millionaire, and he never made more than, or he was making$48 ,000 a year, but he spent 46 or 45, and he was investing and saving money even when he died. So living below your means. And then letting time take over, compounds starting early, get in stocks, get in things early, low-cost index funds. Don't try and be a hero. Maybe take 20 or 30 % of your income and have some fun, find some companies, look for asymmetric upside, and then figure out that you can't find it.

4:10And then diversification, as soon as you get to a certain point of assets, make sure that you're diversified across not only asset classes, but geographies. In terms of the other stuff, okay, you know, until you have some economic security, try and find reasonable health insurance that can bankrupt you. I think health insurance is a transfer of wealth from the poor to the rich. I don't have health insurance because I don't need it, because I can survive. a health shock, you probably cannot. I'm probably a believer if you're young at going with minimum coverage with a high deductible, because the reality is the insurance industry is basically a scam that transfers money from young, healthy people who basically never go to the doctor unless they're pregnant, to old people who go to the doctor several times a week or a month.

4:58I would ask AI for tax advice. I would, if you have kids, start thinking about powers of attorney and HIPAA for when, you know, in trust to make sure that your tax advantage for them and five, it's called 509, find out what education savings, tax advantage, savings, education. I put five grand and I think it was called a 529 or a 509. What's a 10 grand? It was a five or 10 grand when my kid was born 18 years ago and he's going to UVA and it's now worth 90 ,000. So obviously if I'd done it every year for four years, which I did not, I just did it the year he was born, I probably would have been able to pay for the majority of his education.

5:35Almost every state offers some sort of education. Ask AI about what trust you need to make sure if something happens to you. Limited amount of high deductible insurance for a disastrous health issue. But more than anything, look, how do you set your family up for success? You're trying to establish economic security. You be the adult. You establish a lifestyle where you can make more than you can save. You're trying to almost immediately get six to 12 months of cash in a disaster fund in case you lose your job or the economy goes into a tank. But it's the soft stuff that pays off. If you have kids, try and be really good to their—I'm assuming you're a man.

6:21I don't know this. But I think the best thing you can do for kids, especially sons, is be really good to the mom. Try and create a, try and regulate your emotions. Be really kind. Try and spend as much time as you can without recognizing there's always going to be a tension between that and trying to establish economic security. And try and create a loving, secure household where you're generous with your partner and have boundaries for your kids. Recognize, I mean, parenting's a whole different ball of wax. Don't do what I did and try and think you're their friend. You're not. You're there. Quite frankly, I'm an asshole a lot to my sons such that they're not assholes later in life.

6:55I try to have difficult conversations with them when they do something where, you know, I say, don't be ridiculous or stop it or don't behave that way. It's mostly around their phone and how they how they treat their mother. But I have have those hard conversations. I'm going way far afield here. Ask AI, give AI your exact situation, your financial situation and ask what wills, trusts, powers of attorney, you know, DNRs. if you're a little bit older in case something happens to you. But mostly, it's the basics, boss. Start saving early. Try and find a really good, competent partner if you want to have kids.

7:34If you're the dad, the best thing you can do for your kids is be really good to the mother. Be generous. Be the source of emotional regulation and strength and consistency. You know, that's where I've gotten the most reward is feeling like I'm the protector. And I know that sounds, well, it probably sounds very 50s, even though my partners have always worked in many periods of my life. My partner was making more money than me because I was teaching and my,

8:01my partners have been very successful. I'm drawn to that. Some guys are drawn to like the nice woman who doesn't have a job. Some guys are, I've always been drawn to women who have it professionally going on. That, I don't know if lack of a better term, turns me on. And try and get alignment with your partner around finances, is, approach to spending, approach to saving, approach to child rearing. But look, it sounds like the fact you're even thinking this way means you're probably tracking. It's a bit of a word salad. Spend less than you make. Start saving early. Live below your means. Diversify.

8:39And if you just start early and start saving and are disciplined about it, when you're my age, you'll have this incredible gift of economic security. And that's not the gift. The gift is that it frees you up or takes the anxiety away or the layer of stress away such that you can just enjoy your relationships. Thanks for the thoughtful question. I'm sorry I wasn't able to come up with a checklist. Question number two comes from a listener who texted us. I've owned a small custom manufacturing business for over a decade. I find it very hard to be competitive when overseas businesses are so heavily subsidized by governments, especially China.

9:13Margins are getting tighter and clients expect more for less. Locally, we are under the thumb of shareholder-driven economics, high prices on materials, shipping, et cetera. The question is, is it possible for American middle-class, small businesses to become robust again versus a fool's errand? That's a tough one. So foreign subsidies shape global market share. To your point, from 2005 to 2024, Chinese firms received an average of 3 to 8x more government support than firms in OECD countries, so their products are being subsidized. amongst or among firms that expanded globally between 2005 and 2023, government subsidies accounted for roughly 22 % of the market share they gained.

9:49For Chinese firms, that number was nearly 60%, meaning the majority of their market share gains were attributed to states. The biggest business story anyone's talking about right now is China's now engaging in AI dumping. The majority of tokens being consumed in the U.S. right now are from open-weight Chinese models and that are 70 % less expensive. This is the biggest story in business that very few people we're talking about. Research analyzing over two and a half million U.S. and Chinese firms found that sectors subsidized under China's five-year plan saw a surge in new firms while corresponding U.S.

10:17sectors saw declines in output employment and earnings. U.S. import dependence is concentrated. The U.S. imports three trillion of manufactured goods annually. Roughly 1.4 trillion of U.S. imports are concentrated, meaning the U.S. relies on fewer than four economies to supply a given product. So recent shocks exposed what this dependence cost. during the pandemic, our supply chain was just had no slack on it because everything was focused on cost. And when Shenzhen closed down, I was on the board of Urban Outfitters, 80 % of our tops weren't in stock. And when you can't sell tops at a specialty retailer and casual apparel, you're just kind of screwed.

10:55And also tariffs makes no sense. Since Trump opposed tariffs, the U.S. has lost almost 100 ,000 manufacturing jobs and the industry's hire rate is now lower than the onset of the pandemic. Let me be clear. Trade policy, asymmetric, trying to restore asymmetric trade makes sense. I believe that Trump got it right and said that China's taking advantage of us. The way you do that, though, is through negotiations that say, okay, you have to buy our products and let our products into the market. And by the way, if you let your products in for lower than their costs and try and consolidate the market as you did in the steel market in the 80s and you're trying to do with AI now, we're going to put a fairly healthy tariff.

11:32You've got to be thoughtful and strategic about these things. Trump has raised or lowered tariffs on China 17 times. So what are they doing? They're just diversifying away from us. It used to be 24 % of the exports came to us. Now I think it's diving towards 10. And to be clear, global trade or trade with China increases when it's done thoughtfully, when they're not allowed to disrupt industries. Americans like it. 88 % of toys under the Christmas tree are from China. The majority of goods that China ships into the U.S., Americans don't want to make. Like, we don't want to make Nikes. We want to wear them.

12:05So when the good folks in Beaverton, Oregon, design, market, do the advertising, the distribution and the strategy for Nike, that's the white meat of the business. And they capture the majority of the margin. And those jobs are high paying jobs. Making Nikes is something we should do in Vietnam because making shoes for three bucks instead of 13 would have cost in the US that additional$10 in margin can be reinvested in new startups and more higher productive places in the economy. That's how America, because of our lack of protectionism, one of the ways it's grown faster. And then we, you know, capitalism says, hey, you're going to go out of business if you're not holding your own.

12:43Now, in terms of your specific case, oftentimes it just, you know, so your business may just not work. You have to acknowledge that you have to get a kitchen cabinet of people or a board and say, does my business work? But it also might be going up the food chain. It might also be a business to scale. Is there another subscale company doing what you do where you guys should merge and potentially have one back office, one CFO, you know, and quite frankly, just become more efficient? Are there more upstream things you should be doing in terms of maybe helping these firms find other manufacturers or what?

13:19Generally speaking, the American economy has force people to go upstream into marketing, product design, consulting, strategy, services. If you own the relationship, the question is, how can I better serve or better monetize this relationship? And if you're in a business where the product is being, where the, quite frankly, the margin is under compression from foreign competitors, you need to think about either consolidating, finding other smaller firms where you can get efficiencies on the back end, or you need to think about selling to a bigger player, or you need to think about reconfiguring the product so that you can go upstream and grab more margin, if you will.

14:01I started a market research firm right out of business school, and slowly but surely technology came up with ways to do automated phone calling and get better market research for less than I could offer. So I slowly but surely found that people didn't want the research, they wanted interpretation and essentially they wanted strategy. And that if you establish a good relationship with a senior level executive, a CEO, you use other people's research. And then what they really valued was advice. And that that was much more or less margin sensitive, much less elastic, if you will. So this is like, there's no, or also, it might be that it's not working.

14:41What you need is a kitchen cabinet to tell you, give you advice, and then you're going to have to make a decision from there. But I think this is happening to a lot of people. And without knowing the nuance of the specifics and the financials, I don't feel like I can definitively tell you what to do here. What I can tell you that I'm confident about is you need a group of people who know enough about your business and can be, or, you know, are smart, you can be transparent with, who can give you kind of no mercy, no malice advice. Thanks for the question. We'll be right back after a quick break.

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18:32Welcome back. Question number three comes from Rob Shuffles on Instagram. Seems pointless with the state of the world, but I'm in my early 40s and struggling with online dating. Got any tips? Oh, brother. Stop online dating. Look, the biggest trend in the consumer economy is IRL, and that is people going to concerts, people going to church.

18:59People going to the movies right now is back in vogue. Some of the best-performing media stocks have actually been theater stocks. Who would have thought that? Look, generally speaking, there is a phenomena where it becomes winner-take-all in a digitized environment. When we digitized retail, Amazon controlled 50 % of the online market. When we digitized social media or connection, quote-unquote, you saw social media get or meta get 73%, search 93%. Digitizing mating, if you will, has resulted in a bit of a winner-take-all environment where, and you've seen the stats, that a disproportionate number of women online will show the majority of their attention to a minority of the men online.

19:43This has been going on for millennia. If you talk to couples who have dated for longer or been together longer than 30 years, they almost always say the same thing. One of them was much more interested in the other in the beginning. There's very few romances where it's love at first sight on both ends. Men typically have lust at first side much more often, and women tend to fall in love much more slowly, if at all. They have much more, a much finer filter than men, right? Men want someone who's cute, who's nice to be around, who's nurturing, and would agree to be physical with them. That's sort of most men's criteria.

20:21Women are looking for something a lot more nuanced. If this sounds sexist, it is, and I have data to back it up. But, you know, the three things that women find attractive in men. Number one, signal resources. We don't like to talk about it because it makes both sexes sound crass, but women instinctively believe they might need to gestate at some point and that their kids will be vulnerable and they need someone strong to protect them. And in a capitalist society, strength is equated with resources and money. Now, showing up with a Range Rover and a Panerai does signal resources, but it's not everything.

20:55The key word in this is signal. And that is, if you're a dude who has your act together and it goes home and doesn't order another drink because you have shit to do in the morning and you're disciplined and thoughtful and smart and organized, that is attractive because you're signaling at some point you will have resources. Number two, intelligence. The person who makes the best decisions for the family makes it more likely that family will survive. The fastest way to communicate intelligence is humor. And you can't tell someone to be funny, right? That's kind of something, that's a gift you either have or you don't have.

21:24But you can tell them to have a good sense of humor. And that is a willingness to laugh out loud, a willingness to smile, a willingness to laugh at yourself, a willingness to take stuff in stride, a willingness to try and de-escalate uncomfortable situations with humor, right? And appreciation for humor. That's a good sense of humor. And then the number three most under-leveraged weapon in your quiver, and this is the cheat code that most men don't realize. The number three source or the number three criteria that women find attractive in a potential mate is kindness. They want someone who they think when they're vulnerable during gestation or moments of vulnerability that will be kind.

22:02And I believe that you're not, you know, some people are just born kind, but I think it's like anything else. I think it can be a learned behavior. And I think a kindness practice is really powerful. Get used to being kind and trying to go out of your way for people who can do nothing for you. A real red flag in anyone you're dating, male or female, is people who are not nice to service staff. People who are not nice to strangers. People who are overly nice to people that they think can help them out. That just, it comes across as inauthentic. And I think every day trying to go out of your way and leverage that kindness muscle builds the muscle stronger and it becomes, it just becomes a natural muscle memory.

22:42Now, back to you dating in your 40s. I think the key is to put yourself in the company of strangers in real life, right? If you're in the top 10%, if you're over six feet, you know, photograph well, and your Rolex accidentally slips into the profile picture, and you graduated from MIT, you're going to do great online. If you're the other 90 % of us, what you need is that, again, going back to the couples who survived longer than 30 years, What you found is it was almost the man who was more interested in the beginning, but the man had a venue to demonstrate excellence. I liked the way he treated his parents at church.

23:19He was so funny. I liked his friends. I liked the way he danced. We went out a bunch of times with friends, and I liked the way I loved his sense of humor. He was kind. He was so outstanding at work. By the way, one in three relationships begin at work. You want to put yourself in environments with as many strangers as possible, We'll say yes to as many invitations as possible and then get comfortable with no. Are you willing to go up to strangers at a bar and introduce yourself and try and say something nice and establish a wrap, recognizing that many, if not most of the times, they're not going to reciprocate your attention or reciprocate your interest and you're going to have to deal with that.

23:56Can you deal with that? If not, learn how to deal with it. So I would say, look, if online dating, I'm not saying give it up, but think of it as a smaller part of your chemistry set or your toolkit and try and find as many opportunities to meet people in real life. Be aggressive, be assertive, walk up to strangers, get used to know, and I think over time, and also, you know, you're in your 40s, you've probably got your shit hopefully already figured out. What I tell young men is I ask them a straightforward question. I say, would you have sex with you? Are you attractive? Do you take care of yourself?