Courtesy Loftie
This as-told-to essay is based on a conversation with Matthew Hassett, the CEO of Loftie, a company whose products include a digital clock and lamp designed to promote sound sleep. The company, which he founded in New York City in 2018, makes its products in China. Because tariffs are pushing the company’s costs higher, Hassett hopes to boost Loftie’s subscription software business to give the company time to rework its supply chain before inventory runs out — perhaps as soon as May. The following has been edited for brevity and clarity.
We’re a family-owned business and haven’t raised much in venture capital. We’ve had a lot of growth, but we’re still pretty small even though we’ve sold over 150,000 Loftie clocks. Now, the tariffs have completely blown out our whole business model.
Because of existing tariffs, the levy on our clock is 149%, and on the lamp, it’s 175%. We’re paying more in tariffs than we are for the actual product and don’t have the ability to absorb that, so we have to pass it on to customers.
The tariff on our lamp, which sells for $274.99, would be over $100. So, unless we increased the price, we would lose money on every product we sold.
Our focus is, for the time being, to become more of a software company. We were slowly building that business, which uses artificial intelligence to create unique bedtime stories and meditations. We’re now racing to add features, like app blocking and routine-setting, to make it even more of a stand-alone product.
We have over 12,000 subscribers. We want to grow that 10 times this year. Subscription revenue is how I can definitively keep this company afloat and, ideally, avoid layoffs. That’s my top priority.
I need revenue to pay our employees, and I can count on that revenue through software because, at least for now, there’s no tariff on it.
The challenge is having the resources to make this hard pivot under such a constrained timeline — essentially shifting our entire business in 60 days.
I’d still like to be a manufacturer
I still plan to make our hardware products. But until there is clarity about where we can make them at prices people would be willing to pay, I cannot count on that being a business model that will sustain our company.
We still have inventory in China. I recently saw that a container had left the factory on its way to the port. I asked the freight forwarder to turn the truck around when I saw that we’d be paying way more in duties than the value of those goods, which included more than 500 of our lamps. We would be losing money on everything we sold in that container.
I would love to manufacture in the United States, but there are no factories that could do what ours in China does and many of the components are only made there.
As a small business, I cannot go out and create a factory in the US — even if there was a labor force willing to work in such a factory, which I don’t believe there is. So, this talk of “just manufacture in America” is dead on arrival for me, because it’s impossible.
Funding challenges
I’ve been very fortunate to have family and friends, mostly, who’ve supported the business and invested in it. We did our first institutional investment last year. For a while, I was paying myself about $6,000 a year. Now, it’s up to $40,000 annually. At one point, I liquidated my retirement accounts to keep the company going.
We were poised to double our revenue this year. We finally got good long-term inventory financing, which has been a huge challenge. That financing switches from an interest-only period starting in May. I’m going to have to renegotiate with our lenders to push that back while we figure out how to generate the revenue to repay the loan. I’m also potentially going to need additional debt to pay for the lost revenue.
One of the craziest things that happened last week was that I learned that we’re no longer eligible for a Small Business Administration loan we’d been working on for months. It was going to be secured by the company’s assets and my sister’s house, which she was gracious enough to offer as collateral to help us get the loan.
The reason we were denied is that 1.5% of the company is owned by my 83-year-old Irish godfather and two friends from South Africa. There was a recent rule change at the SBA that 100% of the ownership has to be US citizens or green card holders.
So, while the government is completely destroying my business model, they are also not lending to us because 1.5% of the company is owned by non-US people.
It’s very easy to write off China when you’re in a nationalist mindset and think that, somehow, those are jobs that we’re not getting. Yet, there is already low unemployment in the US, so how do we imagine we could replace China’s manufacturing capacity here?
When the president talks about some short-term pain for long-term gain, it doesn’t necessarily track with small businesses because we often don’t have the savings to get through that short-term pain.
It’s just so intense right now. I’m grateful to my team, who are managing to stay somewhat heads-down and work on the course that I’ve charted out to become more of a software company in the next one to two months.
The White House didn’t respond to a request for comment from Business Insider about the effects of tariffs on small businesses.
Do you have a story to share about the effect of tariffs on your business? Contact this reporter at [email protected].
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