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Back in February 2011, I stated that the Double Dip had arrived. That was a somewhat bold statement in February. However in June 2011, that assessment would appear to be indisputable. These 2 charts tell the story of life in uncharted territory.

The Macro Story in just 2 charts
There are many economic charts — housing starts, average home prices, food stamp consumption, etc.  They are all symptoms of the larger structural problem, and that is the rapidly increasing percentage of the population that is unemployed or underemployed, and likely to remain that way for a long time to come.


Over the last 20 years, a vast Human Resources infrastructure was created in order for companies to become great at hiring and retaining the dwindling supply of non-retired talent in the “Baby Bust” when the Boomers started to retire. It turns out that we did not need all that labor after all.  Much of those jobs simply went away.

On the one hand, long-term/permanent unemployment is soaring stratospherically. On the other hand, loss-making GroupOn is on track for a valuation of $20+ billion in their IPO while hedge Fund manager David Tepper bulldozed his $44 million house in the Hamptons.

So, what to do about it?

 

Entrepreneurs create Capital
Capital is winning.  You can win too.  If you start a company, you own 100% of the capital. You can assign a fair value on that capital, and sell some or all of that capital to investors who expect that investment to deliver a higher risk-adjusted return than they are earning on their bank deposits. Does that sound hard? It really isn’t.

Despite all of America’s enormous challenges, this is what makes America great: Entrepreneurs who create something from nothing.  As a serial entrepreneur and past full-time angel investor, I have a lot of opportunities to interact with entrepreneurs.  Here are just a couple of recent examples:

  • GiftBasketsPlus.com: Last week, I had a chance to catch up with Rome Dhanani of zqStores, an eCommerce startup. Rome now has a network of 15 eCommerce sites including his flagship site, GiftBasketsPlus.com which he founded last August. Rome is using open-source eCommerce software from Magento for which he paid nothing. For payment clearing, he uses PayPal Pro which costs him $30 for an unlimited number of stores.  His traffic comes entirely from organic search. He dropships product and clears an awesome margin. With no full-time employees, GiftBasketsPlus is doing multiple six figures in annualized revenues even before the seasonal busy season which starts in October.
  • EZRoam.com:  Over the Memorial Day weekend, I was visiting beautiful San Diego. While there, I had a meeting with startup telecom company EZRoam.  Founder Connan Twomey has bootstrapped a global mobile roaming company that sells you a cell phone which works in 170 countries. The calling rate per minute is far lower than you will pay your regular mobile carrier.  The solution is popular with exchange students and leisure travelers. After less than a year, he has a proven product and is just about breaking even. He has no debt, and his total investment was $15,000, most of which is in the form of physical inventory.
  • Candida.com: Kathy Kalaf depleted much of her life savings battling candida — a medical condition that often goes undiagnosed.  After a successful recovery from debilitating illness, Kathy made a bold investment in the domain name Candida.com. Although Kathy did not have enough capital to launch the business, she approached Epik about turning her dream into a reality through a development partnership that gave both Epik and Kathy a shared interest in future success.  Epik launched her new site 2 weeks ago.

The Bottom Line
Without question, these are challenging times. However, individuals can still maintain control of their own destiny by creating compelling businesses. And for the foreseeable future, I can’t think of a better platform for doing that than on the Internet.


Comments (8)

  • Louise

    June 4, 2011, 11:45 pm

    The new site, Candida, is masterful – kudos!

    Good call on the double dip! Two nights ago, NBC Nightly News featured a clip interviewing people from across the country which proves the country is in a 2nd recession!

    Reply
  • Leonard Britt
    Twitter:

    June 4, 2011, 11:48 pm

    Wow – that average duration of unemployment graph is an alarming stat! 15-20 weeks used to be an indication of a recession and currently we are at close to 40…

    Reply
  • Vishal
    Twitter:

    June 5, 2011, 8:33 am

    Rob,

    Candida.com is super cool site. Well done EPIK.

    Those figures read real bad. Looks like worse it still to come. I was recently reading about the public debt for US, Germany, Japan and UK and it makes a shocking read. Pretty much inline with your post.

    Vishal

    **RWM ** Thanks Vishal. Candida.com (and GiftBasket.com) are a preview of what is possible with product names.

    Reply
  • John Humphrey
    Twitter:

    June 5, 2011, 9:04 am

    Rob, really respect what you’ve created with Epik and the message of this post. Would like to hear more about what you mean when you say Labor is getting a ‘raw deal’.

    ** RWM **

    Income inequality and is not a new topic on this blog. I blogged about a related topic last Thanksgiving:

    http://epik.com/blog/trainwreck-77-of-american-workers-are-living-paycheck-to-paycheck.html

    Also, a good piece in Zerohedge this weekend:

    http://www.zerohedge.com/article/20-facts-about-us-inequality-everyone-should-know

    More anecdotal evidence:

    When I pull into the gas station, I increasingly see folks filling their gas tank $5 at a time. It is pretty clear that these folks are doing what they can to get by.

    I know someone who got his car towed last week. He had to pay a $250 daily yard fee in order to reclaim his car so he can drive to the job that nets him $250 per WEEK.

    I could go on, but you get the idea: Falling after-tax wages + Fixed costs – Unforeseen expenses = Raw deal

    To be clear, I am very much a meritocrat and an ardent fan of free market capitalism. However, the anecdotal evidence of labor’s raw deal is everywhere. Companies would rather lay off people to goose short-term profitability and cashflow rather than invest in the future. As a result, corporate profit levels and cash levels are at record levels while U6 (real) unemployment is approaching 20% and many more are either part-time employed or not earning a living wage.

    It is cheaper and lower risk for large corporations to acquire innovative companies than it is to incubate these new products internally. Since most people are incapable of true innovation they become service sector employees with low income, limited benefits and very little upward mobility. The ones that can innovate play the startup lottery, quite often while working a day job or supplementing income via contract work. This is where Internet entrepreneurs can catch a break. The capital requirements for web startups are very, very low and going lower.

    This is classic Schumpeterian “creative destruction” — only on steroids because of the wealth destruction caused by the housing collapse. If the social safety net — social security, food stamps, welfare, unemployment, etc — holds up, all will be fine in the end. However, if it substantially fails, as it might, you’ll have anarchy — anarchy that will get put down by a highly trained and well equipped military industrial complex.

    Reply
  • John Humphrey
    Twitter:

    June 5, 2011, 7:44 pm

    Thanks Rob, and I agree. I don’t understand why more people don’t see the threat of what can happen to our society when those of our fellow citizens who are barely managing to hang on realize there is no hope and that no one cares.
    29% of Americans don’t have any money set aside for retirement.
    33% of Americans have less than $1,000 in savings – PBS Newshour

    Reply
  • Jason

    June 6, 2011, 2:24 am

    As always, your posts are Epik! :)

    Reply
  • Louise

    June 6, 2011, 4:30 am

    Never mind the double standard that Nevada, Wyoming, and Delaware tax laws present! The more US Citizens flow toward registering their businesses in their wife’s name in Nevada to pay the least taxes, the smaller the pool of regular wage workers who have taxes automatically deducted from their paychecks!

    Republicans, Democrats, it doesn’t matter. Noone can juggle the expenses incurred on the diminishing group of hard working US citizens who pay full taxes, and not ship their profits to the Caymans.

    ** RWM ** Indeed.

    Reply
  • T. Rice

    June 8, 2011, 8:43 pm

    The economy will be a long time coming back. I can’t help but wonder, though, about the relationship that the increasing duration of unemployment benefits has with the increasing length of unemployment. Can’t help but think that many will use the extended time searching for the same or better benefits rather than finding a job that pays less and getting back to work.

    Unemployment benefits has it’s purpose, and I am all for it; I can site many examples where it has helped people survive a bad situation. But, at some point everyone needs to be nudged out of the nest.

    Maybe with this recession, people are just going to have to start thinking creatively, and finding their own niche online, like you suggest.

    Reply

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