People who are looking for restoration of the American economy under a new administration will likely be disappointed. It’s not fully accurate to use the word “problem” to identify one key cause of our financial tension and strife for it seems the term “progress” is also applicable. To put it simply, increased efficiency often equals fewer employees. American businesses have been successful at cutting costs by cutting manpower.
A perfect example of this business innovation was evident last week with the sale of the five-year-old online Dollar Shave Company for $1billion.
A quick look at the history of that company as detailed in a recent New York Times Deal Professor column shows exactly why our economy is in a major transition, not just a simple recession.
This online company started with a simple idea - ship razors to guys who had blades as dull as garden hoes, but yet never remembered to buy a new razor when they went out. Nothing novel in that concept.
They started with a very clever, mostly homemade, ad on YouTube, about 5 years ago. “Within 24 hours, the new business had more than 12,000 orders, more than it could handle. The ad went on to get over 20 million views and rocket Dollar Shave Club to over $240 million in revenue,” according to the NY Times article.
The little company has gone on to capture eight percent of the total razor market in less than half a decade and now has 3 million subscribers. They now offer other personal care products.
They are clearly a great American success story for investors who made a 20 to 1 return on them. But the dark-side is they only employed 190 people at the time of their $1 billion sale. They contract with a Kentucky location for shipping to customers and the razors are made in South Korea.
They don’t deal with local drug/grocery stores. They don’t have anyone to deliver their razors to Pickens stores. No one is making extra cash stocking these razors on Main Street store shelves nor putting themselves through college ringing up the sale of these razors (when a guy actually remembered he needed one). They don’t contribute local SPLOST dollars through the sale of their products at our grocery stores. Nobody blue collar can get a job making the razors in America and nobody white collar can get a job managing the production team.
Modern business is filled with examples like this. Amazon built a retail empire and its performance has rewarded anyone who purchased their stock but how many small bookstores did they put out of business? How many people now buy their clothes, music or sporting goods exclusively online?
Evidence of this increasing efficiency and decreasing wages can be found by noting that the stock market has chugged along much better than expected over the past five years. The market performance has been much more robust than stagnant wage growth. If you looked at solely at the Dow Jones, you’d not understand why middle class America is fretting over the economic future.
We are not faulting or blaming anyone for this trend of innovation over jobs. No one is guilty of anything other than figuring out how to make business more productive. People shouldn’t be held back from having great ideas, cutting costs and trouncing existing companies.
When Unilever pays out $1 billion to the Dollar Shave Club, a small handful of people will profit tremendously [more power to them, wish we had that idea].
But, this is the scary part, the billion dollar company only employed one-third the number of people as our Pickens school system. And that is scary – how can anyone create jobs on a national scale with this type of economic transition underway?