Despite Recession Fears, Small Businesses Keep Opening. Can They Survive?

Oh, you didn't mean all day yet.

Jared Pollium begins this Monday morning, like many mornings, he's weighing out six hundred pounds of malt. That's the grain used to make beer.

These specialty malts add these specific flavor profiles that we're looking for in each beer, and so they'll always be different depending.

Jared and and Chow are co owners of Lost Generation, a micro brewery in Washington, d C. They're also married, and they're showing me around where they make their signature ales pilsners and laggers and then seal them into cans.

When we first opened, we were kind of the neighborhood bar, so can sales weren't quite as prominent. But now that we're making a name for ourselves as a great brewery, then a lot more can sales are starting to go out the door.

And Jared opened the brewery less than a year ago in a former Nobisco factory that's one hundred and twenty years old. And today they're getting started on a batch of one of their original creations. That's our ale, made with passion fruit the hopper so.

That it can go through the mill and get crushed.

We have to open up the husks of the mall, so.

That way it can extract the maximum amount of water from it.

Lost Generation is part of a wave of small businesses that have opened in the US in the last few years. You might imagine the pandemic would have put a damper on entrepreneurs, but it's actually the opposite. In twenty twenty two alone, more than five million small businesses were registered. That's up forty two percent from pre pandemic levels. Bloomberg's end a current dug into why small businesses are having a moment and the challenges owners are facing in this uncertain economy.

Ultimately, at a core of any successful economy is innovation and a willingness take on risk, and lots of people I spoke to you said I haven't seen this kind of scale of ambition for some time in the US economy.

We'll hear more from Enda in just bit, and later on we'll talk to a bakery owner who just entered a new chapter with her business.

It is a very scary time, but it's also a very exciting time. We've been wanting our own space for a very long time, and we were very lucky to grow during the pandemic.

I'm Westkasova today on the big take the Pandemics small business boom. The tap room in the Lost Generation Brewery is equal parts nineteen twenties and twenty twenties. You can see the original bones of the building everywhere.

Original cathedral wooden ceilings, original interior exposed.

Brick, and then there are the contemporary features, a vibrant mural bio, a local artist, and industrial grade brewing machinery that you can see through a Florida ceiling glass wall in the back of the tap room. Jared and Anne say the Lost Generation theme is a nod to the past and to their own business story.

The Lost Generation is a reference to the art movement of the nineteen twenties and thirties with Hemingway Fitzgerald. They found that the art and inspiration from where they were at, you know, whether it be New York or the Midwest or anything like that, was lacking in their time period and it wasn't speaking to them.

So they went out to places.

That had thriving artistic inspiration to really find themselves, and that's how Anne and I did it as well.

They'd been planning to open this brewery for more than a decade. Building on the experience they'd gain in the industry, They were set to begin work in early twenty twenty, so yeah, you can probably guess where this is heading.

We were supposed to sign our lease in March of that year, and then the landlord, their representative, took a vacation. So they asked if we could push back to April first for signing the lease, and we said, yes, you know, we can wait two weeks, it's fine.

And then the pandemic hit and the landlord was like.

Hey, so we're still good for April first, right, And you know, we had never seen anything like this before, and it was all of it's our entire life savings, and so we backed away, you know, cautiously, and then we honestly weren't certain that we'd ever revisit this again, since you know, there's so many businesses in the hospitality industry. We're just struggling so hard during that period of time and it was just a very rough thing to watch.

A year later, they did revisit it, and they secured the location, but banks were much more cautious about lending money to restaurants and bars.

And they weren't giving loans anymore to those types of businesses. So we fought bank after bank after bank looking for anyone who would extend alone, and we did find a wonderful bank that did. However, the down payment had doubled from.

What it was pre pandemic.

And why did they tell you?

Is it just more risk? Absolutely?

Yeah, Like you know, going into the pandemic, we were more like a middle aged driver for a car insurance company, and coming out we were now a sixteen year old with a red car. And so just yeah, they I mean, you could just see the bankers just hear our thing and say, hey, that's a great business plan. You have so much experience, but I'm sorry, like I ran it up the flagpole, We're just not doing that industry right now.

But obviously we were able to.

It cost us more that we had to really scround our life savings and dig into some pots that we promised we would never would but we made it work.

Ann and Jared always knew that opening a brewery would require hefty upfront costs. First, there's the machinery. The brewhouse behind that glass wall in the back is full of enormous tanks for mashing, boiling, and fermenting the grain. There's also the canning operation for to go beer, which was a condition of their loan in case COVID shut down their tap room. Then there are the raw materials like

So we had over budgeted and overestimated to make sure that we were covering our costs. And yet because of supply chain issues, because of you know, things that were happening post pandemic, it was more challenging.

And things freight and all of that became much much more difficult, and so a twenty thousand dollars freight costs suddenly becomes almost forty thousand dollars.

And so it's like, despite the false starts and high costs, Jared and and say, the business in its first year is doing better than they expected. Their staff of ten even got a pay raise this summer.

We are very lucky. Honestly, we've exceeded projections. We usually most businesses expect to lose money within the first year, and we are not in that position.

Yeah, and we've even had quite a few saturdays where she'll send me outside and I have to start being the doorman because we want to make sure that we don't go over capacity and a place will just be absolutely packed.

So that's the story of one microbrewery in DC. But now let's take a look at the bigger picture and why small businesses like Lost Generation are popping up in record numbers. And that's where Bloomberg's end up Current comes back into the picture. The last time, and it was here we were talking about President Biden's industrial policy, how he's trying to bring big business in manufacturing back to the US, and it says is actually small businesses that are the backbone of the economy.

It's kind of one of the untold stories almost of the US economy over the past few years. Everybody built up their savings during the pandemic thanks to the physical similus and money that they were saving anyway. And you know another factor in all of this is just the ease of startups nowadays. You know, there are websites out there offering you to set up an e commerce portal in you know, a matter of half an hour or two hours. You can be up and running in a

And it says small businesses are now powering the US economy in a way we haven't seen for a long time.

It is one of the biggest drivers of economic growth in the US. Of the country's thirty million small companies, they have created more than two thirds of the new jobs creating in the US between nineteen ninety five and twenty twenty one. These small companies, they really are one of the biggest bulwarks of the jobs market in America.

And what do we know about the kinds businesses they are or what are they making, what are they selling.

It's across the spectrum of activities. Whereas I spoke to one company, for example, who's in the business of selling graduating mementos that might be a school ring or a school hoodie for instance. These are the kind of businesses that operate at the heart of your local community. It could be anything from the bakery up to increasingly online or e commerce. That's obviously a whole new opportunity for people whereby it's see an opportunity to sell products online

And is it less expensive to start a business than it used to be.

Well, here's where you get into the trade offs. I mean, certainly it isn't easy of setting up a business, that's for sure. As we just spoke about, You've got all this knowledge online and of course the process it's much smoother than it was. But this is where we go back to the cost of doing business nowadays. I mean, you are dealing with the higher industrates, you are dealing with the labor costs. So it depends on how advance

When you look at a company like Amazon, where you just know you're going to find some version of what you want and it's all easy to order and it's going to come quickly. How can a small online commerce business even compete with that shipping costs? Even people knowing that they exist.

There's no doubt. I mean, that's the challenge. But there's a local aspect to it. There's a local appeal if you're in the local community or you're selling something that's related to the local community. Like I mentioned to you earlier about the graduation momento, is that kind of thing. That market is out there and there's a hunger and an appetite for that amongst say communities around the country.

When we come back what it takes for these small businesses to survive in this rocky economy. So we've heard how millions of new businesses are popping up all across the United States, but it's not always easy for them to survive in this unpredictable economy, I asked, and what the numbers tell us about how many of these small businesses will actually make it.

It's tough to track at the moment how many of these businesses will actually survive to what you might call it being an established business, say the five million established last year. It will take a few years to understand how many of them thrived, how many of them are employing staffed way you're saying and our bone feed the business versus how many were someone's interesting idea on the couch with their laptop and they registered with the authorities.

So it's impossible to talk about employment in the US without talking about health care because so many of us have our health care tied to jobs, and it's one of the things that workers want the most and employers have a hard time paying for because it's so expensive. How many of these small businesses can afford things like benefits, healthcare for or one K, these kinds of things that people expect.

It's an expense. But if your business is getting up and running and it's successful, well then you know the incentive is there. You want to have your staff and you want to pay the benefits. There are companies out there that specialize in bundling the services you need. You need your payrolls, you need your health care, you you know, whatever it is for your staff. If there are companies out there that do all of these services for small businesses.

Let's hear from another small business owner who's dealing with the kinds of challenges that Enda is talking about right now and has been all through the pandemic. Rose Avenue Bakery is also located here in DC. They open their doors in March of twenty twenty, right as COVID lockdowns began.

When you walk in, there's a foyer area. On our left side is a rustic wall with some plants. My partner really wanted it to be minimalists, a little bit of modern by a little bit homey as well.

We have Like I first met co owner late last year when we did an episode about the state of the economy. You might remember her talking about the high cost of ingredients like eggs and flour, and more unusual ones like yuzu. Since last year, Rose Avenue Bakery moved out of their shared space and found a new home in a former dunkin Donuts location. I went by to check it out, Paula, Great to see you again.

Nice to see you.

The first thing you notice when you get to the counter are all the different kinds of pastries, sweet and savory that are displayed behind the glass.

And it's a take on a Filipino street food that's like a spring worlled wrap plantain with jackfruit. It features of roasted plantains with brown sugar and a caramel glaze. It's also Palla.

Says business is going well. Lots of customers from the old location have now become regulars at the new one, and she and her co owner Rose Wind have been able to offer more variety on the menu.

At our previous location, we were only will to serve maybe two or three kinds of savory items. Now half our weekend menu is savory items because it's very popular in DC. Of course, brunch is this like epic thing on the weekend, so we do get a brunch rush. We've got to expand on our sweet menu as well. We still have our iconic donuts like the Passion Food pond on Block sessimy donut.

And what are you selling these for and how does it compare to say a year.

Again, some of the items have maintained their price, like the cookies, it's still at three twenty five. We increase the donut prices by twenty five cents each. The Queen of Months have stayed also the same price. But our savory items like the sandwiches, especially with bacon, we had to increase the price by a dollar or so just because of how expensive meat can be.

Paula says they've had to raise some prices in part because ingredients are more expensive, but also to meet other unexpected costs.

It's been still challenging, especially because we've moved here and costs to moving and getting a new bakery up and running. Of course, our profit margins are a little slim because we're in a new space. The cost of utilities we're not really anticipated in like because we were in a shared space before. When things break down it's on us to fix. We had a lot of issues with our age back during this summer, so having somebody to look at that almost every week got very costly.

One major cost of running a business like Rose Avenue is paying employees. There are six bakers in the back, three managers, and five part time employees in the front of the house, plus Paula and her partner Rose.

The earliest person comes in at three o'clock. They start the day. They pull out all the donuts from the refrigerator that' been proofing overnight because our Brioche show does proof for several days. Then the bakers kind of trickle in between three and four and they bake off everything fresh every day. They fry the donuts fresh every day. Around seven o'clock is when our front of the house starts where they wiped on the table.

I asked Paula how expanding the business has impacted her ability to pay these early risers of living wage.

We're lucky that we've maintained the same ladies that were with us at our old location. But you know, because of this big place and how busy we are now, we really need extra help back there. But unfortunately it's been very hard to find help.

Why are you having trouble finding people? It's a big challenge that's getting.

In your way.

I think because everything is so costly, everybody wants a little bit more money, which is you know, normal for sure. But because we are a small business, we can only afford salaries within our price range obviously, so there is this competition with where we're going to get that money for.

Salaries and what sort of benefits are you able to offer.

We have paid time off here. We also offer health benefits, which is not typical of the food industry. My partner and I don't make Liverpool wages ourselves, and we're putting in our own personal money to keep this place afloat. So it is a very scary time, but it's also a very exciting time. We've been wanting our own space for a very long time and we were very lucky to grow during the pandemic.

After the break, can this small business boom last? One of the more surprising takeaways from this small business surge is who's actually starting these companies, And it told me about two groups in particular who've made gains in entrepreneurship, women and black business owners. A payroll company called Gusto has been tracking these changes in business ownership over the years. They found that in twenty twenty one. Forty nine percent

Women are being given a better opportunity to get in on this in the way they haven't been in the past. The African American community is also notably featuring in setting up these new businesses, and that is being welcomed, as you know, an example of where diversity is making some progress. But you know, they're facing the same challenges as everybody else. That's that's the downside of all this. So obviously a long way to go there, but at least making some progress.

I asked, and where all this goes from here, whether small businesses will keep opening at such a fast pace, and whether they'll continue to be such a powerful economic engine.

You know, there are open questions at the moment, given what's happened with inflation. So there is an air of caution out there, and this probably is feeling that you know, the boom will will flatline at some point. But listening to people though, they do say ultimately at the core of any successful economy is innovation and a willingness to take on risk. And lots of people I spoke to you said they haven't seen this kind of the scale

Now for Paul along of Rose Avenue Bakery and and show of Lost Generation Brewery, the RoadHead isn't certain in business large or small, it never is. But they're focusing on what brought them here in the first place, an idea in a community to serve.

We get lots of messages from loyal customers who have taught us during the pandemic. This was the weekend treat. They awaited by the computer for our pre order selections, and now they love being able to come into the cafe.

We are luckily in an area where people understand that raw materials have gone up, and so they're willing to support local business, and so they're willing to spend. These prices are to keep us afloat. You know, we don't ever try to be these multimillionaires. You know, we just want to do what we love and love what we do.

Thanks for listening to us here at The Big Take. It's a daily podcast from Bloomberg and iHeartRadio. For more shows from iHeartRadio, visit the iHeartRadio app, Apple Podcasts, or wherever you listen, and we'd love to hear from you. Email us questions or comments to Big Take at Bloomberg dot net. The supervising producer of The Big Take is Vicky Bergolina. This episode was produced by senior producer Catherine Fink and Molly Nugent. Phil de Garcia is our engineer.