Time Keeps On Slippin' (Slippin') Into the Future

I finally had a lengthy convo with the wife at Vin & Eddie’s a couple of weeks ago. Even after slogging through all of my posts, she was still all wound up about owning a store.

The promise of eventually owning a mature store, run by somebody else, is seductive. Both physically and financially, it could become a foundation for a renewed assault on the internet, where the real money (and my interest) lies. Successful retailers establish chains and franchises because the profit potential from a single store is constrained by geography and selling space. Internet sales are comparatively limitless.

A store sometimes feels as inevitable as Hillary Clinton once did. But getting from here to there – all by myself – is neither seductive nor inevitable. Like Hillary, it could flame out quickly, dramatically, and irreversibly. More than the money that's on the line, I worry about this drawback: I’d have to mothball my website while I pour everything I’ve got left into the store. The past two years of hard work and self-education have paid off in a growing, profitable, and debt-free business. Putting that aside to go massively into debt for something financially speculative (and logistically difficult) borders on insane.

Yet, continuing on my present course leaves two huge problems unsolved: (1) My personal income remains in the crapper, probably for years to come, and (2) I can’t kick Curio City out of the house, which limits its growth. February’s dismal sales emphasize just how little money I make. If it runs true to form, March will be even worse. I can’t go on like this year after year. I am sick of being poor.

The 4-LED camo caps arrived as expected. Within an hour of emailing the 16 shoppers who had requested notification, one customer bought 24 caps and single-handedly saved February. It didn’t cancel out the $900 sale that inflated Feb. 2007, but it sure as heck helped. (Not one of those other 15 people bought a single cap, btw.) If I subtract out those two abnormally large sales, this February ended up more or less even with LY. Fun with statistics!

As moribund as business is right now – averaging one small sale per day -- the ol’ P&L shows a YTD operating loss of only $56.45 – and that’s after covering my biggest annual expenditures like taxes, government fees, and accounting. 2008 is in good shape, and March’s sales target is low-hanging fruit. If it weren't for the pesky need to earn a living, "Steady As She Goes" would be the obvious path.

Would opening a store generate a big leap in sales, or would its greatly increased costs force my business into failure? Why would a store’s February numbers be any better than my website’s February numbers? A store’s costs are mostly fixed, compared to the website’s scalable costs. Curio City Online might not pay me a decent living for a long time, but neither is it ever likely to fail.

The only real result from my Wife Summit was a mutual softening of attitudes. Anne is a little bit more apprehensive about opening a store – particularly the financial commitment; I don't know if I can erect an impenetrable firewall between my business and our personal finances. I’m slightly more open to taking that gamble, although my fears are still obvious -- leaving money aside, I don't know if I have the personal expertise and energy to pull it off, and I don't want to jeopardize my online business.

At some point I’m going to accept what I already know: No amount of research or discussion is going to part the clouds and reveal a correct answer, because there isn't one. I need to make a choice and go for it. On this, my self-imposed deadline for making the commitment, I don’t feel any more confident than I did before I started all of this. In my weaker moments, I want to take the easy way out and get a normal job. Minimum wage would be a huge raise.

Faced with today’s deadline, I’ve predictably decided to postpone deciding for at least one more week. I put most of last week into the Aging Hipsters product research project that I mentioned in my last post. I’m confident that my week of unpaid labor will bear fruit in the long run. I will wrap that up this weekend, then return to the depressing financial analysis upon which my choice will ultimately hinge, and finally arrange Wife Summit II.

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A new reason to hate Yahoo: Last week I discovered that Yahoo is sending Curio City email to its customers’ Bulk (spam) folder, rather than the inbox, meaning that anyone with a yahoo.com address is probably not seeing my correspondence. So I tracked down their appeal procedure and applied to have my site whitelisted. They turned me down. I’m invited to apply again in six months if I change my policies significantly. Huh? What policies? I don’t send spam! This kind of mysterious and uncontrollable nonsense tips me away from the web and toward a store. Further effort might or might not change Yahoo’s decision…but how many other ISPs out there have blacklisted curiocityonline.com for no legitimate reason? Identifying and overcoming technical errors like that takes a level of expertise that I just don’t have.

A new reason to hate Google: OK, this one isn't as heinous as the Yahoo thing, but I'm trying to be even-handed here. Remember when I told you a couple of weeks ago that I had finally earned my first AdSense payout after two years of showing their ads? Wrong. They don’t actually pay until the balance hits $100. At the rate I’ve been going, that will take three more years.

You know how to help….

The Downside of Profits

You must be as tired of reading the Big Decision series as I am of writing it. I took a luxurious three-day time-out over Presidents Day weekend, when Curio City went almost three full days without a single sale. I think that’s the most time off I’ve allowed myself since I started this thing. So this week I’m sharing that little respite with you.

Stripped of all the bullshit, my business plan looks like this:

1. Buy cool stuff cheap from wholesalers, manufacturers, and importers
2. Resell it to individuals at a gross margin of at least 50%
3. Keep costs as low as possible
4. Profit!

So far points 1-3 have taken all of my attention. A couple of weeks ago, I got the corporate tax returns showing my first-ever profit of about $1,200. Hooray! Right?

Not so fast. Watch how the US tax code makes profits challenging.

Corporate profits get divided proportionately among all stockholders, who have to report this “K-1” income on our personal tax returns. That’s how the federal government gets its pound of flesh from S Corporation profits. The shareholders – that’s me – aren’t liable for the self-employment tax that you’d pay on 1099 income. So K-1 income enjoys a tax rate comparable to that on wages, but without reductions for Social Security and Medicare.

Once I pay the income tax on it, I own that money, regardless of whether Kraken Enterprises pays it out to me or retains it. My natural instinct upon seeing that tax return was to pay myself a nice $1,200 bonus – if I have to pay taxes on it I ought to get the money, right? And that’s about what it would cost to replace my five-year-old gaming computer.

But there’s a complication.

I can only take out earnings in a year that the company records earnings. If I were to pay out the 2007 profit this year, and then show a loss (or a smaller profit) for 2008, I would owe additional taxes on the amount distributed in excess of earnings. Practically speaking, I need to take the profits out before I know exactly how much they are. Fortunately, the bottom line in Quickbooks is a pretty close approximation. I can safely pay myself that much right at the end of the year.

I could still take the $1,200 today if I were confident that Kraken will earn at least that much this year. If I stick with either Steady As She Goes or Curio Metropolis Online, I should record a healthy profit in 2008. But if I open a store instead, Kraken Enterprises will show a huge loss this year, followed by progressively smaller losses over the next five years while the bank loan is repaid. I can’t take my 2007 earnings if I don’t expect another profit until 2013. Besides, Kraken desperately needs the operating cash. Remember my big open-to-buy deficit? Without $1,200 in retained earnings to plump up my operating cash, my bank account would be showing actual red ink right now, instead of hovering near zero.

But there’s another complication.

Kraken Enterprises owes me $28,500 in shareholder loans – the startup cash that I put into the business. I can repay those loans without owing any taxes on the payments, since that’s still my money and it isn’t income. So it should be a no-brainer to make loan payments to myself before taking out annual earnings, right? Well, yes and no. You see, I deducted the corporation’s 2005 and 2006 losses as bad investments on my personal tax return. The value of those loans is therefore reduced by the $9,700 in Curio City losses that I wrote off – meaning that I don’t expect to get that money back -- leaving only $18,800 that the corporation still owes me. As you can see, Kraken’s losses are my losses.

Ah, but there’s another complication.

This year I have to pay taxes on $1,200 worth of 2007 earnings that I didn’t actually receive. That therefore offsets my previous deductions and restores the value of my loans by $1,200. Since it’s my money, letting Kraken retain it amounts to making a new loan. So now the corporation is holding my original $28,500 in loans, minus the $9,700 that I wrote off, plus the $1,200 that I paid taxes on but let the company keep.

The smart strategy is to personally pay the small income taxes on each year’s profits and leave (most of) that money in the company, gradually erasing Kraken’s early losses and rebuilding the value of my loans back up to the original $28,500. To lessen the burden on myself, I should take just enough of the annual earnings to cover the taxes that I have to pay on them. That allows me to withdraw tax-free loan repayments until I recover my entire $28,500. Unlike K-1 payouts, loan payments are not limited by annual earned income.

(I don’t understand how I actually make any profit on that original investment – I would have done much better to just put $28,500 in a 5% savings account for all those years -- but I’ll ask my CPA about it when the time comes. For now, owning a profitable company is payoff enough).

Once my investment is completely repaid, there’ll no longer be any personal advantage in letting Kraken retain earnings. By then, Kraken should be generating enough money that the annual K-1 payment will rival my salary – with no payroll taxes owed. The IRS understands this incentive to steer money into earnings rather than payroll, and requires you to pay yourself a reasonable salary. Naturally, they define “reasonable”.

Don’t even ask me how state taxes fit into all of this. I’m quite sure Massachusetts will take a substantial cut eventually. For 2007, I just owe them the same base $456 corporate excise that I’ve owed for the past two years. I don’t think they take anything further until my company’s actual book value is positive, after the loans have been repaid. But I’m really just guessing about that.

Incidentally, if Kraken had not plowed $2,100 of operating cash into web improvements in 2007, the year’s profit would’ve actually been $3,300. If I don’t spend on further upgrades, 2008’s profit could top $5,000.

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Aging Hipsters

The web developer who might replace Eric also runs a website for baby boomers called Aging Hipsters. http://aginghipsters.com/ Its owner wants to roll out a retail page that will link to affiliates who sell merchandise of interest to boomers. She makes a few commission bucks without owning any inventory or fulfilling any orders. But she needs help picking products. Sensing that I might know a thing or two about that, she enlisted me. So I’m spending a substantial number of hours browsing other websites for items of interest to baby boomers.

What’s in it for me? Well, I’m finding a few potential products for Curio City. It takes my mind off my Big Dilemma. But mostly, I can include some of my own products without paying commissions on any sales that it might generate. At the very least, I’ll get some quality links that will raise my page ranks for those products.

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How’s Business?

Weak. My OTB has barely budged. The $456 excise tax payment that I mentioned above drained the treasury last week. I managed to pay off my charge bills for February, but unless things come roaring back quickly, I might actually have to carry some debt in March. This is just clumsy budgeting. A nice sales surge could clear it up quickly. If Panther Vision doesn’t crap out on me, I’ll receive my 4-LED caps early next week.

Next week: Back to our regularly scheduled anguish.

Any Progress?

Maybe just a smidgeon.

This week’s post was supposed to be a break from my drawn-out hand-wringing soap opera. I’m tired of thinking about it, so you must surely be tired of reading it. But my wife and chief advisor caught up on my blog yesterday, so I need to keep hammering at this now that discussion has become possible.

The wife (Anne) clearly wants me to own a store. She revealed an ulterior motive last Saturday at the Union Brewhouse. She has the idea, based on a craft store that rents out its basement, that my store might have “extra” space in which she could hold her art meetings and classes. I don’t know how this store found a lease with “extra” space. Rent and sales are both measured per square foot, and square footage includes all floor space – sales, office, storage, and even the bathroom. Because you pay the same rent on all footage, maximizing the percentage of selling space relative to non-selling space is key to profitability. There is no such thing as “extra” space unless you own your building, and thus break free of the rent-per-square-foot convention. Even then, you can't escape the need to maximize sales-per-sq-ft.

Buying a retail building is not in the cards anyway.

I spent a little time last week trying to update the numbers that I set out in this old post. These are the same numbers that made me shelve the store idea last year. What little I found is not encouraging.

Putting the Numb in Numbers

Rent should run about $20 per square foot -- $3,000 per month for a 1,500 ft store. I found some current local listings ranging from $14 for a ratty looking building in Quincy up to $26 for a primo space opposite the new Weymouth Landing train station. Rent in an anonymous new retail building in the unappealing town of Holbrook is $18. So the $20 ballpark number I’ve been using all along still looks solid.

Without paying for proprietary reports or subscriptions, I could not find specific, locally relevant statistics on the other important number: sales per sq ft. Hunting down published numbers confirmed what I found last time. Gift/specialty stores average anywhere from $148-268 per sq ft, depending on location. A new store feeling its way and finding its clientele should strive for the bottom of that range ($150). The 2,500 sq ft median size of such stores is also much larger than the 1,500 sq ft I consider optimal – 2,500 sq ft at $20 per sq ft is a whopping $5,000 per month! My old spreadsheet breaks even at $185 per sq ft at 2,000 sq ft (annual sales of $370,000) – not impossible, but not very reassuring, either. And that assumes that I either have only one part-time employee for two months out of the year, or I work without any salary for myself to afford more help.

So a few hours of research just confirmed what I discovered last time. I still can’t figure out how a store affords rent, payroll, and debt service without achieving daunting sales expectations. And I will not open a store until I’m confident in its chances of success. I’ll probably have to cough up some bucks for solid local sales data before I can settle this.

As I’ve said before, there are lots of stores in the world. They do alright, so there has to be something wrong with my assumptions or calculations. I’m going to dig up the old spreadsheet and see if half a year’s additional experience has brought any insights since the last time I went over it. But before I jump down that rabbit hole again, here’s a new thought.

Happy Whatever Day

Curio City’s dependence on Christmas is its biggest weakness. Business is slow at best for nine months. It revives in October, climbs fast through November and reaches a frenzy in December. Those two intense months force me to grow beyond a one-man, home-based business. Yet, during the other 10 slow months, I can’t afford the infrastructure that I need to support the two busy ones. This is just the same old conundrum again. All retailers face the same pattern. Why is it particularly daunting for me?

Two reasons.

First, I eschew the Hallmark holidays. After the 900-pound gorilla of Christmas, Mothers Day and Valentines Day are the high points of the retail calendar, and I do almost nothing to take advantage of those. (Fathers Day, St Patricks Day, and Halloween are all bigger than either of those for me). I don’t want to carry kitschy cliché stuff emblazoned with “mom” or red hearts and sappy sentiments. Yet, that’s what the masses expect and buy. Also, pay-per-click advertising for generic holiday keywords (e.g., “Valentines Day gift ideas”, “gifts for mom”, etc) is prohibitively expensive. I pulled the plug on my generic Valentines ads this year when mainstream retailers bid the price well above 30 cents per click. My usual ceiling is 20 cents, and I try to stay below 15 cents for most of my words. I’m already spending nearly 10% of gross on PPC ads. In retrospect, I probably should have rewritten the ads for some of my product-specific keywords to include a Valentines Day reference.

Exploiting minor holidays and everyday gift-giving occasions (weddings, graduations, retirement, etc) would smooth out the year somewhat. I have to learn how to do that without giving in to garbage merchandise and cheapening the Curio City concept. This might be much easier to do in a store than online, since offline advertising costs don’t fluctuate with the holidays. Still, if you advertise crap for your sweetie, you’d better be prepared to deliver pink hearts. My ads would have to address that somehow.

Second, I need to escape the “gift shop” trap. I deliberately didn’t use the word “gifts” in my business name. “Gift shop” sets up many expectations that I don’t want to meet. Gift shops are tacky and frivolous and predictable. You don’t go to a gift shop to buy something for yourself. Should I start by junking my “Curious Gifts for Curious People” slogan? Maybe I can come up with something better before I reorder business cards again.

My real problem is not slogans, though. It’s that I sell little or nothing that people actually need. And this is where Anne’s hobby could come into play.

Could the Wife Be Right?

Artist Trading Cards are not the same thing as “scrapbooking”, but they use many of the same supplies. Expensive supplies. Difficult-to-find supplies. In case you didn’t click my links, here’s what Wiki says about the business of scrapbooking:

In the late 1990s, many scrappers in the US opened stores to turn their hobby into a business. Within approximately 5 years, many of those stores were forced to close due to a downturn in the economy and the fact that many store owners mistakenly assumed that loving to scrap was enough to run a retail store. Many owners simply didn't know how to run their stores. During this time, more multi-level direct sales companies were formed. Several were closed due to mismanagement, while others weathered the tough times. It also gave rise to a new breed of business - the home-based retailer. Companies arrived to provide information for individuals who wanted to break out of the direct sales mold and go out on their own. While vendors had traditionally stayed away from the home-based market due to fraud, they began to warm to the idea of the non-traditional sales channels as a way to get their products in front of more consumers through home parties and workshops. Working with a company like this enabled them to tap into legitimate home-based retailers.

The scrapbooking industry doubled in size between 2001 and 2004 to $2.5 billion with over 1,600 companies creating scrapbooking products by 2003. Creative Memories, a home-based retailer of scrapbooking supplies founded in 1987, saw $425 million in retail sales in 2004. This hobby has in the US surpassed golf in popularity: one in four households has someone playing golf; one in three has someone involved in scrapbooking.

In other words, Anne might be on to something. Maybe that "extra" space isn't entirely a luxury after all :)

Scrappers make glorified baby books about memorabilia and family history. Their output is crafty and sentimental. But they do love to buy supplies, as the Wiki points out. And those supplies are just unusual enough to mesh with Curio City’s bigger concept.

ATC artists are on a higher plane. They subsist on scraps from the scrappers. ATC artists possess the art knowledge and the ambition to rise above crafty sentimentality. They are probably richer and better educated than scrappers, and they resent plowing through all the tacky garbage on the market as much as I deplore the necessity of carrying it.

There might be a business opportunity here for somebody with both ATC knowledge (Anne) and retail savvy (me). Maybe this is the year-round business that could sustain Curio City during the lean months. Maybe fixtures and merchandise get moved aside at closing time…tables and chairs get deployed…and Anne teaches her ATC class to a group of ladies clamoring to buy overpriced supplies. She already has an ever-growing audience.

Possible drawbacks: ATC artists are a much smaller population than scrappers, and (according to Wiki) their hobby has only existed for about 10 years. What if the fad dies out? I have no knowledge of, or interest in, any of this. I’d have to rely on the chronically-overscheduled Anne to drive every aspect of that business.

While this is an intriguing approach to my core conundrum, it’s too iffy to bet the company on. I still need to make Curio City add up without it. If I do go with a store, though, I’ll shop for space and fixtures with this capability in mind. At the very least, I can sell tools and supplies over the web (but again, I need Anne for that).

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So…how’s it going? Last year, this would’ve been one of the slowest weeks of the year had I not unexpectedly sold $900 worth of E-luminators for a high school dance. My very ambitious goal for this February, barring another miracle sale, is simply to equal LY. That would effectively be a $900 year-over-year increase, which is pretty good for a slow month. If Panther comes through with those 4-LED caps as scheduled, I might have a chance. My biggest constraint right now is an OTB stubbornly stuck more than $2,100 in the red, preventing me from bringing in any new products.

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Finally, I want to thank the 53 readers who clicked on a Google ad during the past two years. Thanks to your support, I just qualified for my first Google AdSense payment: $30.27, baby! W00t! The rest of you know what to do.

I'm the Decider

Sometimes I wish I had an ordinary soul-sucking job with a reliable paycheck, defined hours, benefits, paid time off, a retirement plan, and all those good gilded-cage trappings. A job that I don’t have to think about. A job with a boss who would just tell me what to do.

As a business owner and sole employee, I have to make all of the decisions, big and small, with only my wife’s opinions (as valuable and valued as they are, she’s hardly disinterested) as input. Then I have to implement those decisions by myself. My thought process is not moving forward in concert with my self-imposed deadline for making this bet-the-company decision. I’m keenly aware of the calendar pages turning. The first of my three business startup certificates of deposit matures next week -- I need to either reinvest or spend that money pretty soon. How can I think harder? Writing these posts is the only technique I know for examining my own plodding mind.

Given my ‘druthers, I’d continue with Steady As She Goes through the end of this year. That would let me delay the offsite space problem for one more Xmas season while continuing to build my cashflow. I could then ramp up Curio Metropolis early in 2009, and I’d probably have enough money coming in to rent space by the time Fall sales overwhelm me. The main challenge to my web business is becoming more logistical than sales-oriented. I just can’t handle greatly increased business with my present setup.

Unless my physical facility generates revenue (meaning a store? Or is there some other way to do that?), I can’t afford year-round rent when I really only need the space for 2-3 months. There has got to be a creative solution that I’m not seeing. Maybe the very idea of owning and warehousing my own merchandise is wrong. Maybe I need to rely much more heavily on dropshippers, or find some other way to outsource order fulfillment. Maybe one can rent space seasonally, and move in and out of it as needed. That would probably create a bigger logistics nightmare than it solves. Somebody tell me what to do!

Seeing the Future

Without a conceptual breakthrough, opening a store feels as inevitable as Hillary Clinton – something unpleasant that you just have to accept. My crystal ball shows this: Steady As She Goes from March through May, working the minimum required 2-3 hours per day to maintain the web business while designing my store’s content and organization, researching the local retail scene, writing a business plan, investigating POS systems and fixtures, investigating advertising, figuring out how to mesh the store and web accounting, looking at security systems, designing signage, etc. – the details are endless and intimidating.

I need to refine my concept. Do I still carry useful but mundane objects like popcorn poppers and wine corks and ceramic tiles? These slow-selling remnants of my original scattergun merchandise assortment seem to have no place in Curio City's emerging personality. Should I focus hard on the unusual gadget-novelty type stuff? Is there enough of that to sustain a store, and does it sell well enough? Shoppers need to unconsciously grasp the concept as soon as they walk in the door – my merchandise selection and presentation have to make a deliberate impression. Simply plopping the website merchandise on shelves is not going to cut it. Yet I don't want to look like Newbury Comics or Spencer Gifts or The Sharper Image or that other trendy store in the mall, whatever it's called.

I would need to stop planning and begin realizing Curio City Offline by June. I don’t know yet what tasks are required of me, or in what order, or how to achieve them, or how much time they will take. That ought to become obvious as I go. I'm sure that the two biggest hurdles would be obtaining financing and finding a location. I’d need to sign a lease by late August, spend 3-4 weeks in September configuring the space (paint, wiring, lighting, carpeting, fixtures, signage, security…), spend October filling it with merchandise and seeking an employee, and then open by Halloween to get the kinks out by Thanksgiving. Until it’s bringing in money, a business can only burn investment capital to make loan payments and pay rent. A tremendous amount of progress has to happen in a very short time to minimize that deadly interval when the bills are coming and the sales are not.

Somebody tell me what to do!

The Same Old Hurdles

There are a couple of deal breakers that I have to address right up front (maybe this is what I should be working on right now). Even if I am personally stuck covering 75% of the store’s operating hours, I must have at least one part-time employee who can relieve me. As far as I’m concerned, if I can’t afford a small payroll, I can’t afford a store. I am also unwilling to work without pay for any length of time, although it will almost certainly become necessary during the fallow months. And I still can’t make my spreadsheet forecasts break even until sales reach over $400,000 per year, or 10 times what the web brought in last year. That's totally unrealistic.

I would have to suspend Curio City Online when I begin the store opening process. I simply can’t run two businesses at once. Hopefully this hiatus wouldn’t last more than a few months. I’d have to abandon my 2008 web sales goals, which is a bitter pill after the year’s encouraging start. As soon as the store opens, I’d resume my PPC advertising and hope that Curio City Online can pick up where it left off. I’d need the web sales give me some pittance to live on, since a store can't pay me anything outside of November and December. (Even during those months, my part-time, minimum-wage employee will be making more than I do).

Once the store survives its first Christmas, I could try to ramp up Curio Metropolis Online -- if I'm not permanently chained to a cash register, that is. Unless I’m in a high-rent or touristy area, store sales will not even begin to approach costs from January through October. I would have to focus on online business again when the store isn’t pulling its weight.

Thinking is hard. Somebody tell me what to do!

January’s sales streak ended with January, and February is starting out grim. My paycheck has fallen back to $50 per week again – before taxes. I blame Valentines Day. People are buying chocolates, flowers, tacky heart-shaped junk and frilly underthings. I did sell a few Valentine things , but my heart just isn’t in that type of merchandise. If I’m right about this, sales should recover somewhat during the second half of the month…and I’m still hoping that pent-up demand for 4-LED caps will pull February out of the crapper.

Boiling It Down

Today I’ll boil down the salient points of my past few posts into an easily digested bullet list. Maybe the process will help me decide.

But first, a status update: January’s stellar business destroyed every non-holiday month that has come before. That’s due almost entirely to lighted caps. If Panther Vision had been able to resupply me with my best-selling and most expensive 4-LED camouflage cap, January would have actually rivaled November’s sales! Astonishing. I’m beginning the year with black ink and looking at the prospect of a significant profit. There is no way I can spin that into bad news. :)

A single $900 sale made February the strongest non-Christmas month of 2007, so the drama is unlikely to go on. I will be content to equal LY’s sales and preserve January’s margin of surplus.

My chronically depleted open-to-buy is not keeping up with my needs. Including several large backorders, I’m over $2,400 in the red again – and that’s after arbitrarily wiping out 2007’s deficit at the beginning of this year. My new-product wishlist keeps getting longer as I struggle to keep replacing the merchandise that I’m selling. I’m not sure what to do about this; my simple and straightforward OTB calculation is not amenable to change. For now, I’m just running up red ink, knowing that the bills for some existing orders won’t hit until March. As I like to say, “I cannot sell what I do not have”. But I have to be very careful. This sales surge could end at any moment. There’s supposed to be a recession on, remember?

Now on to the digest:

Curio Metropolis Online

Pros:

• Low overhead relative to owning a store.
• Likelihood of rapid growth when a small number of known problems (SEO, developer support, marketing & advertising) are overcome
• Feasible with my remaining startup cash – debt is probably unnecessary
• Although the workload would grow heavy, I’d retain control over my schedule

Cons:

• I can’t handle a tenfold increase in the workload by myself, especially during the two holiday months
• I can’t hire help while Curio City remains in my home
• My home is inadequate for greatly increased shipping/receiving and storage
• I can’t afford to rent space without much higher sales; 10 months out of the year, sales don’t justify renting space.
• Relies heavily on outside expertise: Web development and marketing.
• Steep learning curve and ongoing investment costs to keep pace with ever-evolving “web 2.0” technologies

SUMMARY: I am most concerned about being at the mercy of outside experts, whom I’ve had no luck finding up to now and who tend to be unreliable and/or unaccountable anyway. I can’t physically handle a large, rapid increase in business by myself. It’s very difficult to justify the expense of renting commercial space when it’s only crucial for a few weeks out of the year. Finding appropriate space near my home is likely to be very difficult. Commercial space that contributes no additional business (as would a store) – space that’s purely a major new cost – is a tremendous hurdle to overcome. There must be some creative way around this that I'm simply not seeing.

Steady As She Goes

Pros:

• Lowest overhead of all.
• Requires only incremental tech improvements and new knowledge
• Postpones the need to move into commercial space, perhaps until the cashflow can support it
• No hired help required
• Little or no further investment necessary; builds upon existing cashflow
• Lowest risk – January’s sales exceeded the benchmark 50% growth
• This option best suits my personal preferences and lifestyle

Cons:

• Lowest potential reward. Even using optimistic assumptions, it will take at least several years before I’m paying my share of the bills again
• Merely postpones, rather than solves, the main challenges posed by Curio Metropolis
• Given the limits imposed by my physical facilities, keeping up with even a mere 50% sales increase will be extremely difficult during November and December

SUMMARY: Low cost and low risk are very appealing. I had planned for a 25% increase from 2007 to 2008. Doubling that to fifty percent would be a huge success. Sales so far this year are running 150% ahead of LY. That's a powerful argument for Steady As She Goes. I already know what I need to do to maintain or accelerate that increase, if not how to actually accomplish it. During the slowest months, I have the freedom to run errands, do chores, tend my garden, do the marketing, cook the meals, and generally be a good housewife. Arranging a vacation is not a huge problem. Even when the Halloween-to-New Years stretch compels me to work a lot more than 40 hours a week, I retain some control over my workday. I like the idea of spending little or none of my remaining savings, and letting Curio City pay its own freight instead; I never thought that would be possible this soon. This is the approach that I want to take. But I worry that my natural caution, fear of change, and plain old inertia are holding me back. Even with the dramatic percentage growth that I’m enjoying right now, the dollars involved remain small – maybe too little to justify the required effort (although a hefty year-end profit and shareholder loan repayment could change that calculation). The plodding approach that has gotten me this far can probably carry me much farther… but slowly, and I will ultimately encounter the same growth-related challenges as Curio Metropolis would face right away.

Curio City Offline

Pros:

• Gets Curio City out of my house; easy to employ help
• Best potential for dramatic sales and personal income growth
• Long-term growth and expansion path is well defined
• Easy learning curve
• Easiest to finance
• Less competitive than online retail; easier to define and defend a niche (despite living in a retail Mecca, there is no similar store nearby)
• Cash-and-carry is much less work than shipping every sale

Cons:

• Highest fixed and operating costs; will require substantial debt
• Highest risk of rapid and unrecoverable failure
• My forecasts just don't add up: Rent, payroll, utilities, insurance, and debt payments? How can that work? I need revenue of $400,000+ to cover all of that, and that's twice what a small store in a secondary location can deliver
• Might require more effort than I am capable of handling alone
• Completely monopolizes my time and attention, probably for years; significant hit to quality of life. No vacations, no garden, no housewifery
• Web business will definitely suffer from inattention
• Dealing face-to-face with the public and their children
• Significantly more returns, damages, theft
• Not how I want to spend my days – I just plain don’t like stores

SUMMARY: Every time I think about this, I immediately ponder how I can get myself away from the cash register – I need to work at a higher level than that, and I am not temperamentally suited to sitting in a public space all day, every day. So I’d need help right from the start. Yet, far from being able to afford hired help, a new store often can’t even pay its owner anything for the first year or two. Is opening a store that I don’t want to run myself a stupid idea? I think of it primarily as a base for web operations (where the real growth potential ultimately lies, and where I am already earning a profit). Although owning a mature store with routine operations and reliable staff several years from now is beguiling, getting from here to there will be a frightful amount of work and expense. Most people who do this have a partner. During the holidays running Curio City Online is already more than a fulltime job. How can I possibly do that and open and operate a store, too? And finally, there is no chance that I can spare the necessary time and attention for pre-opening while also maintaining my existing web business. I don’t see any way around putting the website on life support while I turn my energy elsewhere. Walking away from a profitable and growing business strikes me as a foolish idea, even if it’s only for a few months.

CONCLUSION: If I had one, it would go here. Next week, I’ll see if I can find better numbers and revisit my budget forecasts for the umpteenth time.