The First Shall Be Last

And now the first is last: Curio City Offline, or opening a physical store, was my original plan. The web store was my wife’s idea when I started out too late to open a store for Christmas 2005. If I go with this future, the deadline for opening is Halloween 2008 (ideally closer to Labor Day).

The advantages are simple enough. I’ve worked in or managed so many stores over the years that there isn’t much mystery to it. I don’t mean to diminish the challenge, but I’m confident that there’s nothing I can’t overcome. The learning curve is gentle compared to web technology. Conventional businesses make bankers smile; I can secure a loan for a store much more easily than I could pitch my nebulous e-commerce plan to a loan officer. All of my hand-wringing about getting Curio City out of the house is automatically solved with a store as the base of operations for the web business. In-store shoppers are a more captive audience than online shoppers, which means less competition and better markups. Cash sales will slightly reduce my overall payment processing costs. Local advertising is comparatively easy – a few newspaper ads, a radio spot or two during the holidays, the occasional sponsorship or community event. I would be able to sell heavy, bulky items that I currently won’t consider, being a shipper. Opening additional stores and building a retail empire is a well-trod path to riches – it could eventually get me into the Berkshires for a few months a year, if I had a store there. With all of these pluses, opening a store should be a no-brainer, right?

Not so fast. Let’s go through the drawbacks.

1. The process of finding retail space and configuring it, then fixturing and filling it, is an enormous job that I might not be capable of doing by myself. I would need many more products than I carry now, and in greater quantities, and attractively displayed with a more coherent presentation. In-store shoppers are a different demographic than I’ve been cultivating; some of my top-selling web products will be dogs in a store (and some of my online dogs, such as Sea Stones, might sell well in person). Even if it goes smoothly and I make wise choices, it’s going to take a long time and an incredible amount of work. Most people who do this have help. I don’t even know how to start, and I’m completely on my own. Do you find space before you seek financing?

I’d have to decide immediately whether to create a large, slick store with full staffing, or start with a small mom-and-pop (just pop, actually) approach. The slick store requires heavy investments in lighting, signage, carpeting, paint, security, display materials, brand-new high-quality fixtures, and advertising. It should probably be professionally designed. It would need to be in a high-traffic, high-rent location to justify all of that, it would need a substantial payroll right off the bat, and it would need to rake in big bucks right from Day One. In Massachusetts, businesses with more than five employees have to offer health insurance, so I’m limited to hiring four people at the most. If the cashflow doesn’t materialize immediately and hold up throughout the year, the slick store will die fast. There is only one chance to get it right and very little breathing room to correct mistakes or change directions. OTOH, the potential payoff is substantial.

The mom-and-pop would require smaller investments, and could work in a second-rate location with a tiny staff (me, and possibly one part-time helper two months out of the year). It could hang on while I learn the nuances of the business. Its death agonies would be slow enough that I might be able to change direction before it’s doomed. It’s the old question of risk vs. reward. The slick approach is the way to go if I want to establish a strong presence, expand quickly, and shoot for big money. The mom-and-pop approach is more in tune with my personality, but it’s at risk of stagnating and tying me down indefinitely without ever paying me very much. My web strategy is too seasonal and specialized to transfer to the slick approach, so I’d have to draw a different type of customer with untested new merchandise categories. It’s probably wisest to start out with a mom-and-pop, get the kinks out of the whole store thing, and then open a slick store two or three years later – as soon as the starter store shows a profit. That would continue my bootstrap philosophy of using one modest success to finance another step, rather than betting everything on one roll of the dice.

There’s no guarantee that I can get the loan I’ll need, either. My experience developing Curio City Online will allow me to write a very strong business plan. Still, credit is supposedly tight and bankers are newly skeptical. I won’t put my house up as collateral. Persuading a bank to loan me ~$60,000 without a lien on my house will be tricky. OTOH, I think I’ve got almost that much open credit on my Amex and Mastercard. I could theoretically charge the whole thing!

2. How do I maintain my web business while I’m working at full capacity to open a store? I already work fulltime from Halloween through New Years, and at least halftime the rest of the year. My minimum necessary daily chores – filling and shipping orders, recording deposits, paying bills, reordering and receiving merchandise, answering e-mail, processing paper mail, etc. -- takes about two hours a day. Would I have to suspend Curio City Online while I’m creating Curio City Offline? It would be foolish to jeopardize my profitable and growing web business through inattention or conflicting priorities. As I write this, Curio City Online is enjoying its best non-Christmas month ever (thank you, Panther Vision!), and I have not yet begun to push hard for more progress. How can I seriously think about putting this on life support? If nothing else, the web cashflow would help cover a store’s first faltering steps and put a wee bit of money in my pocket while I work for no salary.

Once I get past the opening – and it’s very hard for me to think beyond that tremendous milestone -- how would I integrate the two businesses? Sunshop doesn’t interface with any point-of-sale (POS) software, and its creator is unaware of anyone who’s modified it to do so. Would I have to keep the web and store inventories physically separate? How would I handle the financials? Would I need separate Quickbooks files? Would my POS system replace Quickbooks for the store? I think I’d have to either run them as separate enterprises, or completely redevelop the website with all-new software, undoing a lot of the effort that I’ve invested over the previous two years...and that revives my longstanding trouble finding a new developer. If I doubt that I can run a store by myself, how can I possibly run a store and a web business? Unless this is all structured wisely, it will add considerable new bookkeeping requirements at a time when I need to maximize efficiencies.

3. As soon as the doors open, that store has to be staffed all the time. Retail plazas typically specify minimum operating hours, and they don’t allow closing for vacation. Most new stores employ not just the owner, but his family as well, before they can afford to hire help. I don’t have a family; my wife already keeps far too busy to help out substantially. During the first year or two, I would have to spend at least six days a week in the store, 10-12 hours per day, 52 weeks per year – most of it alone. For the past few years I’ve enjoyed almost complete control over my schedule and the structure of my workday, even when I’m very busy. Running a store takes that away completely. I do not want to be a slave to a store. The business will certainly fail if I’m chained to the cash register every day. This is by far my biggest fear about opening a store. There’ll be no summer Berkshires vacation. No weekends and very few holidays off. No more Saturday afternoon wine tastings. No more cooking; if we go back to restaurant and takeout meals, I’ll gain 50 pounds like I did last time I ate that way. No more vegetable gardening or yard work or snow shoveling. No more housekeeping (what little I do). No more workday errands. No more anything except working and sleeping. Such a serious decline in my quality of life would make me deeply unhappy – especially if I’m only drawing a salary two months out of the year. Don’t laugh; it could happen.

Well, that's just too bad, Ken. That’s been the lot of working people for centuries: either you have time, or you have money, but never both. Maybe I just need to suck it up and put on the harness again. But the fact that I already resent this store’s intrusion on my life bodes ill. I don’t even like stores. I never shop offline, myself. And I should remind the Reader that I’m pushing 51 years old. My health and vigor will not hold up forever. If I have to staff my own store by myself, sick days are not an option.

4. The overhead is overwhelming and my forecasts don’t add up. A friend who owned (and lost) his own store firmly believes that you can’t make it unless you own your building – otherwise you are working for, and at the mercy of, your landlord. Rent for a tiny store in a nice CBD location (my first preference) would run $3,000+ per month. For perspective, that almost exactly equals LY’s gross sales! Even a small store in a marginal strip mall is going to cost upwards of $1,500 per month. Being open to the public makes insurance mandatory, and I’m sure that will be expensive. I can always forgo paying myself if the business isn’t there, but payroll is also mandatory if I have even one employee. There are merchants association fees, maintenance costs, cleaning/trash removal, utilities, taxes, licenses, permits…the list goes on and on. Like the engineer who concludes that the bumblebee can’t fly, I don’t understand how any store can cover all these costs – but obviously they must. There are stores everywhere, after all. The real question is whether I can learn on the job before going bankrupt. I didn’t go ahead with Curio City Offline until my spreadsheet convinced me that it had a chance of breaking even. I won’t open a store without a similar level of confidence. My projections indicate that I need to gross over $350,000 per year before I can even think about hiring an employee, and that can’t be right; that’s way too much business for one person to handle. My first step would have to be obtaining solid cost numbers, instead of the educated estimates that I’ve used so far, and figuring out why my budgets look so gloomy.

5. I would once again be dealing personally with the public. Nobody will ever mistake me for a “people person”. I like being faceless and dealing with the world through email. A store owner becomes known to lots of people, and might even have to participate in his community. I’d hate that. I especially dislike children, and my type of merchandise is going to attract them like maggots. As soon as customers start walking in the door, I have to worry about shoplifting, breakage, damage to the store itself, liability…even robbery and personal safety. My focus to date on small, lightweight, high-value products is going to make theft deterrence a big challenge. The bigger and busier the store, the worse the problems from the plague of people are going to be.

6. The stakes are high, and I’d be working for free. Failure would lead to bankruptcy and dissolving my corporation, and the odds of success seem slight. None of the bookstores that I managed ever earned profits, because mall rents and staffing were too expensive. Chain stores are a pyramid scheme whose purpose is to pay the salaries of the non-productive people in the home office and generate enough cash to keep expanding. The only profitable store that employed me – the Museum of Science shop – didn’t pay rent, had a huge captive customer base with no competition, and used a lot of volunteer labor. No brand-new store ever pays its owner a salary right off the bat; I might very well have to work without pay (beyond what the website brings in, that is) for a year or two. My (admittedly flaky) projections don’t allow for payroll until the debt is paid off.

Timing compounds the risk. We are entering a recession of unknown severity and duration. At this writing, it has all the appearances of a panic. We old folks know you just hunker down and wait these out; recessions are as self-limiting as are expansions. However, investing the last of my savings and going into debt while consumer spending is declining does not constitute “hunkering down”. Granted, recession will cripple my sales regardless of which path I choose…but it imperils this most expensive of possible futures the most. On the plus side, interest rates will soon reach historic lows, and rents will probably follow. This summer might be the best possible time to obtain a business loan and sign a lease.

And now I’ve come full circle without a decision. This bet-the-company turning point will determine the trajectory of the rest of my life. So I’m going to commit myself to choosing a future by the end of February. Why then? For one thing, my remaining startup money is locked away in bank CDs; the first one matures in mid-February. Will I invest that money in the web (Curio Metropolis), put it toward opening a store, or keep it in the bank (Steady As She Goes)? By the end of February I’ll have a better idea whether the conservative Steady approach is realistic, as well as how severely the economy is tanking. The longer I put off deciding, the better informed that decision will be...yet, with the tremendous amount of work that opening a store would entail, I am going to need a solid six to seven months before Christmas spools up again.

Seven months. It doesn’t seem like much.

Next week I’ll boil this all down to bullet points, and add any new thoughts that come to me.

Curio Metropolis Revisited

This week’s post is long. Go get yourself a refreshing beverage. I’ll wait.

Surprisingly little has changed since the first time I wrote about this, more than one year ago. Begin by reviewing.

With much expense in time and treasure, I achieved about 90% of my first 2007 goal, absorbing the Sunshop 4 upgrade. Turnkey is still releasing at least one major patch per month; I read their support forum almost daily to catch bugs and undocumented features (which would be all of them; there is no doco at all). And circumstances kept Eric from finishing my scaled-back implementation list. So I’m still going to be absorbing Sunshop 4 for several more months before it settles into a stable “finished” state. I do, however, have a brand new look (although not as attractive as the old one) with more advanced functionality (if only it all worked as designed). That’s certainly progress.

My second goal, finding a new developer, fell through when the two candidates whom I mentioned a year ago both withdrew from consideration. I’ve had no new leads since then.

I never got to my third goal of starting some modest search-engine optimization (SEO) because it depended on the Sunshop upgrade. I could theoretically pursue that now.

The original idea behind Curio Metropolis was to first achieve the three goals above, and then implement parts of my original 2005 design. I have since abandoned large chunks of that as impractical, but several key features would still define Curio Metropolis. I’m no closer to that than I was a year ago, and I still face the same hurdles. Now I’m also considering the “Steady As She Goes” version, which has the distinct advantage of being attainable. Both Curio Metropolis and Curio City Offline are both too big for me to tackle without outside help and knowledge that I don’t possess. Even though sales are slowing as the recession gets a grip, they’re still outpacing LY sufficiently to keep this idea on the table.

Steady As She Goes is doable with little or no additional startup money. It does not require much expertise that I lack. It continues the bootstrap approach that I have employed from the beginning, and I prefer an evolutionary strategy to a revolutionary one. It remains feasible as a low-overhead home business for at least one more year, and possibly two. I remain comfortably in control.

On the down side, the potential payoff is modest at best. Recession makes it unlikely that January’s strong start will bear up all year. But the downturn will affect me regardless of the path that I take. Let’s face it: I don’t sell necessities.

Here are the steps that I can think of taking to achieve it (and dear Reader, if you have any suggestions, by all means leave a comment):

- Find and hire a new developer. My annual development budget is very modest, so I need someone who, like Eric, charges a reasonable hourly rate and is fair and honest about his fees. The tasks that I envision for this new contractor are probably within my planned operating budget:

o Finish my punch list – any items that Eric leaves undone.

o Perform future Sunshop upgrades in a timely fashion.

o Apply some minor appearance tune-ups (color changes and layout)

- Find a search engine optimization (SEO) firm or specialist who can evaluate and tune up my site for a reasonable price, as a one-time effort. Continue to read up on SEO myself, and use Sunshop’s new Meta tag abilities to improve page rankings on my own.

- Find one new product comparable to my Panther Vision caps, and one or two steady but unspectacular new lines comparable to golf balls and Switchables.

- Find someone who can advise me on marketing and advertising. I’ve had so little success with this in the past that even a small improvement should bring a big payoff.

- Investigate various seals and endorsements and whatnot that I can display on my site for little or no money – things like the BBB Online seal of approval.

- Contact someone from SCORE (Senior Corps of Retired Executives) for (free?) general feedback and business advice. I am a little skeptical that a retired person will be up on e-commerce and web technology, but I’m sure that his or her general expertise would be valuable.

The minimum goal is to achieve the 25% growth that I have planned for 2008. Exceeding 50% growth would be a wild success.

Curio Metropolis is the same idea on a big scale with high stakes. It would take all of my remaining startup cash (which still might not be enough). I’m not prepared to seek financing until my cashflow is stronger. I lack the technical knowledge to evaluate the high-priced experts that I need to hire. I lack the time, attention, and expertise to accomplish so much by myself while continuing to run my existing business. My chief concern is that this is simply too big for one old man to handle. Does that mean finding a partner and giving up some ownership? I don’t know. I definitely don’t want to do that.

The only real argument in favor is a substantial potential payoff. I could be earning decent money from a much larger business within a year or two.

Here is the punch list that I can think of:

- Find a developer who will work on a project contract basis, and who is capable of creating artwork. What will this developer do?

o Create and apply new custom graphics (textures, templates, and some small simple Flash or Javascript animations)

o Implement a few key features of my original design (sorry I can’t specify these without tipping my hand to potential competitors)

o (Junk Sunshop and create a new e-commerce engine from the ground up?)

o Introduce some basic “web 2.0” technology – video, polls, etc.

- Hire an SEO firm for ongoing, regular optimization.

- Find several major new products and advertise them heavily.

- Outsource marketing and advertising to a professional on an ongoing basis. This is probably the biggest single expense; marketers make big bucks.

- Outsource product photography, or acquire proper photographic equipment and facilities (a white box and floodlights)

- Hire a consultant to develop a better action plan than the vague one that you just read.

- Find cheap commercial space for storage, shipping and receiving.

- Hire seasonal shipping and receiving help, or figure out how to outsource it entirely.

The objective is to increase business fivefold (halfway to the ultimate level that I need).

Hitting the wall:

Under either approach, volume will eventually outgrow my ability to handle it. Moving Curio City out of the house requires a quantum leap in my cost structure. I’ve been saying that my sales must grow by an order of magnitude to pay me a comfortable living wage. If you add in rent, utilities, internet, insurance, maintenance, etc. sales have to exceed that tenfold increase.

How do I afford all of these new expenses before I have the cashflow? And how do I achieve the cashflow without making the investments? It’s a chicken-and-egg problem. Steady As She Goes postpones and slows the reckoning, so that I can face it gradually and alone, in the manner with which I'm comfortable. Curio Metropolis puts it front and center, where it needs to be addressed immediately.

Commercial rents south of Boston are terribly expensive. Even the most rudimentary space in an industrial location is likely to run $1,000 a month, minimum -- if I can even find such space near my home. I need to investigate what’s available and get firm pricing, rather than just pulling numbers out of the air. In order to justify its costs, the facility needs to generate or enable sales that would not otherwise occur. This always leads me to consider over-the-counter sales, which inevitably implies a storefront, which quickly balloons into something approaching a full-blown Curio City store.

I need to either find a way around this, or embrace it.

There are order fulfillment services. I don’t know anything about them except that they exist. You rent space and labor in a generic warehouse facility, and somebody else handles all of your shipping and receiving. Is that more economical than renting and staffing my own space would be? What about quality control? Is it appropriate for a retailer (as opposed to a manufacturer)? I will need to investigate this.

Smashing the wall:

What if, instead of moving Curio City out of the house, I had a house that was bigger and better configured for business?

Curio City World Headquarters is located strategically in an upstairs closet. My “warehouse” is a cramped, cold, poorly lit, dirty storage area in a cellar that has been known to take on water. I have no space on the first floor, where egress to my too-small car is, so filling orders involves a lot of running up and down stairs. I could probably make my procedures slightly more efficient, but not enough to matter in the long run.

Suppose I had a house where all of this took place in one big room, or two contiguous rooms on the same floor? Suppose the “warehouse” room had access to something resembling a loading dock (e.g., a garage door or porch)? Suppose I could keep my products easily accessible, rather than having to burrow through boxes to fill orders? I could increase my efficiency considerably.

This would not eliminate forever the need to rent commercial space, but it might postpone it until sales volume grows enough to justify rent – thus giving Steady As She Goes a big advantage. If my work rooms were isolated from our living area, I might even be able to bring in seasonal help.

It would have the additional major bonus of upgrading our living quarters and making my wife very, very happy.

This audacious idea has obvious drawbacks. The housing market is in freefall, and likely to get worse as the recession deepens. Trading up before the bottom is in sight would be financial suicide. If I put the rest of my startup money toward a down payment, I am definitely locked into Steady As She Goes. We don’t have any money to prepare our old house for sale (although we could use our home equity line if we could count on paying it off when we sell the house). Shopping for a house with a business in mind seems short-sighted when that business will probably still need to move out after a two or three years at most. Finally, further entwining the fates of my home and my business makes me uncomfortable. With so many reasons that this is a bad idea, why does it still appeal to me so much?

I probably need to move Curio City out of the house either this year or next, whether I like it or not. Curio Metropolis would mean doing it by late Fall, if I can miraculously get that ball rolling by early Summer. Steady As She Goes buys me another year, or possibly two, and keeps the idea of a house upgrade in play; the huge drawback, of course, is that I remain poor and dependent on my wife for a couple more years while Curio City grows slowly (but with little risk).

Sorry to disappoint you, Reader. All of that verbiage led nowhere. Next week I’ll shine the spotlight on Curio City Offline, probably with equal ambivalence.

Back to the Futures

My first few posts this year will look a lot like those from January 2007: I am pondering possible futures again, but more urgently now. I need to choose a path, plan a route down that path, and start the journey within the next few months. This runs smack into one of my deepest character flaws: I avoid big decisions because I don’t like closing off options. Choosing one path necessarily abandons the others. It increases the danger of failing at the same time that it raises the stakes of success. I am comfortable with small, manageable, and low-risk endeavors. But business success entails risk. Entrepreneurs are high-stakes players. Like it or not, I have to confront that.

To move forward, let’s first go backwards. Last year, I laid out five possible futures: Curio City Offline (opening a store); Curio Metropolis Online (expanding the website); Tentacles of the Kraken (starting additional websites in parallel with Curio City); A Curious Hobby (getting a job and operating Curio City part-time); and Exile on Main Street (opening a store in a low-cost area).

Today I’m going to dismiss the three least likely options, and add one new, if unlikely, possibility.

Exile On Main Street – moving Curio City to the Berkshires (or some other lower-cost area) -- is not going to happen anytime soon. Although my wife and I would very much like to spend a substantial part of our summers there, we will never live in the Berkshires year-round. The Boston area does have its drawbacks – cost and traffic chief among them. The Berkshires have their drawbacks, too; basically, we would get bored during the winters and chafe at the isolation and inconveniences. Braintree is where we live, and it’s where Curio City shall remain for the foreseeable future. Reluctantly, I relinquish my fantasy of living on a country estate and owning a business in a small community out west. If I go the physical store route, maybe I can still expand out there someday...turn the reins of my Boston empire over to a manager, and run the Berkshires store myself.

A Curious Hobby – getting a conventional job and relegating Curio City to part-time – is a defeat that I don’t need to admit yet. Curio City was profitable in 2007. It’s still growing at a respectable clip, and should continue to do so unless the recession is worse than I anticipate. I still have startup money in the bank. I’ve learned enough over the past two and a half years that I’m starting to get good at this. If Curio City still shows little hope of supporting me a year from now, after my money is all spent, then I’ll have to resurrect this option. But for now, I choose to relinquish the comfort and safety (and utter boredom) of getting a normal job. I can’t see myself ever going back to a professional desk job again anyway; at most, I’d bag groceries part-time while continuing to pour my heart into Curio City. Minimum wage would be an enormous raise for me!

Tentacles of the Kraken – launching a constellation of parallel websites – is just a marketing ploy. I don’t have enough personal interest in any particular merchandise category to really engage myself, and I don’t see how fracturing my limited time and attention is going to help anything. It would be an organizational nightmare for very little potential gain, unless the tentacles reach into something completely outside of my retailing comfort zone – in which case I would have to learn a whole new business from scratch. No, I don’t see this happening until Kraken Enterprises is a much bigger company, capable of devoting managers to each new area. So I happily relinquish this idea.

That leaves Curio City Offline and Curio Metropolis Online for further discussion. Those were always the strongest contenders; focusing in on them is not exactly a big leap forward, but at least it’s a start. The interested reader would do well to read those links. I’ll be dredging them up and debating them in depth in coming weeks, but I won’t be rewriting them.

For the sake of discussion, I hereby create one more possibility: “Steady As She Goes”. It’s Curio Metropolis with one twist: What if, instead of injecting a lot of money and professional talent, I only need to keep getting incrementally better at what I’m already doing? I’m on a decent glide path right now. January’s sales to date are blowing LY right out of the water: On Jan. 7, I exceeded the total sales for all of January 2007, and as of today I’m just $277 shy of my plan for the whole month. Although business is slowing daily, yesterday was my first zero-sales shutout since the middle of November. The big open-to-buy deficit that I expected to persist through February is already half erased. If this pace continues – a huge IF, given that we’re only in the second week of the year -- I could double LY’s performance. Even though the dollars remain dismal, the percentages have got to get one’s attention.

To pay me an acceptable salary, my business has to grow by an order of magnitude (that’s ten times, for the arithmetically challenged). Even if I could indefinitely maintain the 25% annual growth that I ambitiously planned for 2008, it would take about 40 years to get to 1,000%. I don’t have 40 years.

However, if I could double my sales from year to year, it would take only four more years to reach my success level. It’s probably going to take that long for either of my other possible futures to pay off. So, as a thought experiment, let’s consider what would happen if I really did reach my success level without making any drastic changes or pouring more money into it.

Business is running at double LY’s pace without any marketing, advertising, or other promotion. If I got smart/lucky at marketing, I might be able to maintain or even increase this pace. Or it might skid to a halt as the recession blossoms...but I really can’t factor that.

Physically, I can handle this pace without even breaking a sweat for 10 months out of the year. The Christmas season is a different matter. During the weeks between last Halloween and Christmas, I was easily working 50-60 hours. Physically hauling the merchandise in and out of my cellar was challenging – remember, I’m 50 years old. Even if I only had to work 50% harder to do 100% more business, I’d still be facing 75-90-hour weeks for two months. I don’t have the stamina to maintain full efficiency under that kind of load. Something would suffer. If I’m spending all of my time shipping and receiving, how can I monitor my inventory and customer service? What if I get sick, or injure myself? Routine operations require me to work (at least a little bit) seven days a week for six months of the year, and two of those months are intense.

Then there’s storage and transportation. Even with most of the sales coming from high-volume, fast-turnaround Panther Vision caps, I ran out of room in my cramped portion of our cellar and had to stack boxes in the living room. During the peak weeks I was schlepping 15-20 boxes per day to the post office and UPS Store, and hauling a comparable volume of new merchandise back home. I can’t fit twice as many boxes in the Curio City delivery van (pictured below), so I’d be making twice as many trips instead, further straining my time.

The conclusion is same one that Curio Metropolis Online inevitably leads to: The two frenzied months out of the year will force me to move this business out of the house. Steady-As-She-Goes may not hit this hurdle as quickly or expensively as Curio Metropolis Online would, but it doesn’t get around it.

Since today’s post has already run longer than I like, I’ll leave further specifics for next week’s reevaluation of Curio Metropolis. The two paths are similar enough to be discussed in parallel.

Looking Back at 2007

Looking Back at 2007

Despite failing to achieve the primary objective that I laid out for this year (doubling my sales), 2007 ended up being more successful overall than I had hoped.

Sales

The Good: Net sales this year were up $5,000 over LY, or >17.5%. Most companies would kill for 17.5% annual growth.

I had planned to inject $5,000 in startup cash for web upgrades this year. The company paid me about the same amount in salary, so Curio City would have been a revenue-neutral, breakeven enterprise in 2007. Circumstances limited my tech spending to just $2,117, and I got fewer than half of the enhancements that I wanted. Unexpectedly, Curio City paid for these upgrades out of operating cash -- and still showed a small operating profit! Not only did the company pay its own way LY…it managed to finance some self-improvement, and it did so while putting money in my pocket.

In other words, I now have a profitable business. Let me emphasize that: After just two years, I have a profitable business. That’s a significant achievement. Huge, really. It overshadows all else.

The Bad: I had originally planned for sales to double this year. When it rapidly became obvious that that wouldn’t happen, I cut the plan to 75% sales growth. The 17.5% that I achieved is not even close to 75%. The 25% increase that I’m planning for 2008 might also be too ambitious. As a business matures, its growth rate slows. And as I enter my third year, the word “startup” becomes a stretch.

Sales still only amount to about 10% of what I need to generate a living wage, yet I could just barely keep up with the pace during the busiest weeks. There is simply no way that I could possibly handle 10 times as much business during November and December by myself (although I could handle a significantly heavier workload during my 10 off-months). Yet, if I’m earning only a fraction of a living wage myself, how could I pay an employee anything at all, much less Massachusetts’s extravagant $8 minimum wage? I dream of someday making $8 per hour! Even if I could forgo my own token salary temporarily to pay some help, what would I do? Invite some kid to hang out in my cellar a few hours a week? My biggest near-term challenge: How do I increase revenues by an order of magnitude without increasing my workload or expenses more than marginally? If that isn’t possible, what are my alternatives?

The developer who has been with me from the start (Eric) is only sporadically available to address my current punch list, and would rather not take on any future tasks. If I hope to upgrade my site at all this year, I need to find a new developer. I’ve failed at that several times already, and I don’t have any current leads. Unless I get an unexpected break, I have to either pay dramatically more money for fulltime developer support, or content myself with whatever minor adjustments I can make myself. Making this decision is another huge challenge for 2008, and depends on the direction that I decide to take. That will be the subject of next week’s post.

As the economy continues to erode, consumers will cut back on such luxuries as the gifts and novelties that I sell. I’m still so small that my growth potential overshadows anticipated cutbacks in consumer spending. But a rip-roaring recession, like the one gathering steam now, will still present a serious challenge.

Footnote: For reasons too wonkish to concern anyone but me, I’m changing the way I calculate gross sales this year, so there’s going to be a slight disconnect when comparing sales year-to-year.

Payroll

The good: My salary equaled LY’s pay despite devoting a lower percentage of gross sales to payroll. Lowering the payroll percentage created a profit. Profits can be retained, or distributed to shareholders (that’s me) as Schedule K income, which is taxed at a lower rate than wages. I also have the option of repaying shareholder loans, which aren’t taxed at all since I never deducted them from my personal income. Curio City owes me $28,840.45 in loans. After some hand-wringing, I repaid myself $340.45. Since my still-sketchy plans for 2008 all include infusing some or all of my remaining startup cash as additional loans, this little repayment is merely symbolic. But it’s a good and encouraging gesture.

Because I did turn a profit last year, I’m increasing my payroll percentage somewhat this year. If I hit my sales plan, my salary will grow by double digits – without eliminating the hope of making another loan repayment at the end of ’08. I still don’t make enough money to contribute to our household expenses…but I hope that I’ll at least have enough walking-around money to pick up more incidentals than I have for the past couple of years.

The bad: My gross salary is still barely 10% of my minimum acceptable wage. As encouraging as the percentages are, there are laughably few actual dollars involved. This was my third consecutive year earning only a token salary, and now I’m facing a fourth. Even if I can increase my salary by an impressive 25% next year, we’re only talking about a $1,000 raise. Ordinary people spend that much on their morning coffee.

Footnote: Because not all of my costs scale up with income, I can probably raise my payroll percentage as sales increase. That means I might not have to increase sales 10x in order to increase my salary 10x. OTOH, I still need to introduce some major budget items (like insurance) that will probably derail this approach.

Products

The Good: Panther Vision caps saved my bacon in 2007. I grossed about $6,000 selling over 300 of them – 20% of Curio City’s gross income came from those caps!

Overall, a few high-margin items helped me keep my overall markup just barely over the critical 50% “keystone”. When I have to sell products at less than double their cost, I start missing my budget numbers. Sales don’t generate enough profit to replace the sold merchandise, and a death spiral begins.

The Bad: I overspent on Christmas merchandise by nearly $1,500. I’m almost out of some bestselling items (caps!), my OTB is in the red, and I’d love to spend an additional $2,000 right away. Even if I make my sales plan, it will take all of January and February to struggle back up to zero – and that assumes that I don’t buy anything else. Since that’s obviously not practical, I arbitrarily reset my OTB to zero effective Jan. 1. That’s going to mean taking money from someplace else, like advertising. (On the bright side, the first week of January blew away my sales plan and recouped much more of this shortfall than I had hoped).

Panther Vision is not an easy vendor, either. Their lineup changes frequently and without notice. There are supply interruptions. They do not communicate sales or special deals.

Finding Panther Vision was a stroke of luck. I seriously doubt that the caps will still be hot next Christmas. The American marketplace thrives on novelty, and finding the Next Big Thing is going to be a permanent challenge. But I don’t have a fulltime buyer. I can only devote a fraction of my attention to seeking new merchandise...and that fraction shrinks as growing the business increases other demands on my time.

Winners: The caps and the clip-on cap lights were such runaway hits last year that I’m not even going to link them here again. Other things that did better than expected: Temperature-Controlled Faucet Lights, Lovell Studios jewelry (I was ready to give up on it after I had not sold a single piece in months), and even Periodic Table Shower Curtains and the Infinity Optics Watch (which I had thought was completely dead).

Standards: Vinylux products, DayClocks (nothing like last year, but still a decent item), golf balls, Switchables, and levitating globes all did about as well as expected. Finding half a dozen more standbys like these would be a big leap forward.

Disappointments: The two biggest culprits for my OTB budget hole: Pursehooks did OK, but didn’t come anywhere near their early promise. I overspent heavily on Big Schnozz tissue covers, and especially the new styles, to take advantage of a free shipping offer that was not supposed to be extended to US customers; freight from Vancouver is very expensive. The manufacturer raised their price, so I raised mine, too. I’m guessing that other stores – especially Canadian retailers -- undersold me. Those two lines were my biggest miscalculations.

Cigarette case PPC keywords are very cheap, so that page brings in lots of traffic for very little cost (about 5 cents a click). Since the margins are good, it ought to be an easy profit center. Yet, they stopped selling entirely. I find something clever and new, I’m getting out of the smoking accessories biz. Sorry, smokers.

Record purses are proving too difficult to sell, as the turnaround time on special orders is too long and I can’t publish the list of all available titles without giving away the source; I fear that these might end up on the “great ideas that don’t work out” pile, along with Sea Stone bottle stoppers and Memo Clocks. I’m not giving up on them yet – Valentines Day and Mothers Day could bring a surge -- but I’m glad I don’t have a lot of inventory dollars tied up in them. Given the steady-but-unspectacular success of levitating globes, I’m a little surprised that I didn’t sell a single Zero-G Sports item. Maybe other stores undercut my price. I got them at a remainder price and kept the retail above keystone. I don’t care; eventually the supply will become scarce, and my price will look attractive. I am not in any hurry to sell those.

Footnote: Giftwrapping was the big loser this year. I only collected $14.50 in giftwrap fees this December, against $51.75 LY. I’m pretty sure this is an early indicator of the impending recession.

Marketing

The Good: I achieved everything above despite having no marketing or advertising going for me in 2007 except pay-per-click advertising. All of my other efforts at marketing failed, so I have nowhere to go but up in 2008.

The Bad: All of my efforts at marketing failed, and I have no reason to think that 2008 will be any better.