Are tariffs good or bad for founders? - My First Million Recap

Podcast: My First Million

Published: 2025-04-11

Duration: 48 minutes

Summary

The episode dives into the real-world impact of rising tariffs on e-commerce businesses, the challenges of moving manufacturing to the U.S., and the domino effect on small businesses and consumers. Sam Parr and Shaan Puri unpack the costs, solutions, and survival strategies for founders navigating this economic storm.

What Happened

The episode begins with Shaan sharing his personal experience of being recognized in public while on vacation in Hawaii, adding a lighthearted touch before diving into the serious topic of tariffs. He recalls a previous visit to Hawaii during which a crypto crash cost him a million dollars, setting the stage for a discussion about the unpredictability of external events on business operations.

Shaan and Sam explore the implications of the recent escalation in tariffs, particularly the 104% tariffs imposed on goods coming from China. They explain how these tariffs double costs, forcing e-commerce businesses to either absorb the financial burden or pass it on to customers, thereby increasing prices significantly. Shaan highlights an example of a friend whose shipping costs for goods already in transit jumped, leaving him on the brink of financial ruin.

The hosts discuss the complexities of shifting manufacturing to the U.S. While it seems like a logical solution, they explain why it’s not feasible. Factors like de-industrialization, lack of skilled labor, and outdated machinery make it nearly impossible for U.S.-based manufacturing to compete with China. Even inputs for products made in the U.S. often need to be imported, compounding the issue.

Shaan describes the survival strategies that businesses can adopt in response to tariffs. He emphasizes the importance of forming a focused “SWAT team” within a company to tackle the crisis, identifying six levers such as raising prices, finding new suppliers, and negotiating costs with factories. This proactive approach, he argues, is critical to mitigating financial damage.

The conversation also touches on the broader economic implications of tariffs. Shaan points out that small businesses, which already operate on thin profit margins, are disproportionately affected. He predicts that these tariffs will lead to widespread inflation, especially during peak shopping seasons like Christmas, as the increased costs trickle down to consumers.

The hosts shift gears to discuss Medieval Times, a dinner theater franchise that has been surprisingly successful over the decades. Sam recounts its origin story, from a small Spanish restaurant to a $150-200 million business with 10 locations in the U.S. He marvels at the efficiency of their operations, including streamlined menus and performances that change only every five to seven years.

Shaan draws a parallel between Medieval Times and startup operations, emphasizing the importance of studying adjacent business models. He shares lessons from his first startup, a delivery-only sushi restaurant, where his team innovated by creating a centralized drop zone for faster deliveries. This story highlights the value of first-principles thinking and questioning industry norms.

The episode concludes with a discussion on creativity and innovation. Shaan references the Wright brothers and the Yankees’ redesigned baseball bats as examples of breakthroughs achieved through first-principles thinking. He encourages listeners to question assumptions and look for unoptimized areas within their industries, drawing inspiration from adjacent fields.

Key Insights

• Tariffs as high as 104% on goods from China are forcing e-commerce businesses into tough choices—either absorb the skyrocketing costs or pass them to customers, potentially doubling retail prices. This sudden spike even impacts goods already in transit, leaving some founders on the brink of financial collapse.
• Shifting manufacturing from China to the U.S. seems like a fix, but de-industrialization, outdated machinery, and a lack of skilled labor make it financially implausible. Even U.S.-made products often rely on imported inputs, meaning tariffs still hit businesses hard.
• A focused SWAT team within a business can counter tariff-related crises by pulling six levers, including renegotiating factory contracts and sourcing new suppliers. Without this kind of laser-focused response, small businesses risk losing their already razor-thin profit margins.
• Medieval Times, a dinner theater franchise worth $150-200M, thrives by running lean operations. Their menu is stripped down, and performances stay unchanged for five to seven years, proving that consistent simplicity can drive decades-long success.

Key Questions Answered

How are rising tariffs affecting e-commerce businesses according to My First Million?

Rising tariffs, such as the 104% on goods from China, are doubling costs for e-commerce businesses. This forces them to either absorb the financial hit or increase prices, which can hurt demand and drive some companies out of business.

What is the Medieval Times business model discussed on My First Million?

Medieval Times operates as a dinner theater with 10 locations generating $150-200 million annually. Their efficiency stems from streamlined menus, pre-planned performances that change every 5-7 years, and a unique entertainment experience combining theater and jousting.

What strategies does Shaan Puri recommend for startups dealing with tariffs?

Shaan recommends forming a dedicated team to focus on the crisis, implementing a tariff surcharge, exploring alternative suppliers in lower-tariff countries, and negotiating with factories to share costs. Proactive planning and swift execution are key to survival.