October Surprise

October is just a few hours from over. One of the worst months in the history of the world economy turned out to be among Curio City’s best non-Christmas months ever. I can’t explain why. Maybe my business is just too small to be affected by macroeconomic trends. Incremental improvements in my own operations and market position dwarf the overall decline in consumer spending. Or maybe Christmas just started early this year. Ordinarily the holiday uptick starts around Halloween. This year, it started after Columbus Day.

Here are the juicy numbers for calendar October:

• Total income: +64%
• COGS: +49.6%
• Gross profit: +76.6
• Payroll: +292.5% (yay me!)
• All expenses: +79.6%
• Net income (profit): +20.2%

Same numbers for YTD:

• Total income: +75.2%
• COGS: +74.1%
• Gross profit: +80.3%
• Payroll: +95.3%
• All expenses: +50.8%
• Net income: +1,190%

To celebrate, I gave myself another raise, from 17.5% to 17.75% of gross sales (works out to around $150 per year). That’s my second raise this year, up from 17%. I’ll eventually need to get my payroll percentage north of 20% if I’m ever going to hire employees.

Now I’ve got to keep bucking those macro trends.

Eric upgraded Sunshop to version 4.1.7 last week. It went smoothly. While I was bumbling and fumbling my way through various account management screens, I discovered that MochaHost has only assigned me 25 simultaneous database connections. It’s no wonder I keep getting the max_connections shutdown! I wonder now if there was ever a bug at all, or if they are just being niggardly with server capacity. When I complained about various speed issues, Mocha moved my site to a new server. I just re-pointed my domain name servers this morning. Right now I can’t access my store from my other computer, whose DNS cache I did not flush. I suppose that’s for the best; I don’t really want orders coming in on the old server, since it’s not easy to flip back and forth between databases. It supposedly takes up to 72 hours for the Internet to cope with a DNS change. I’ll leave my other computer unflushed so that I can periodically check for access. Meanwhile, I’m suspending my ads for the second time this week.

The version upgrade and the server move certainly explain why this week’s sales performance fell back into the “merely OK” category. At the moment I am exactly $1.28 ahead of LY and plan looks elusive, especially with advertising suspended and the DNS change still propagating. I’m sure that my site’s improved performance will pay off over the long haul. The site is much, MUCH faster on the machine whose cache I flushed (maybe because it’s not getting any traffic yet!).

Upcoming topics:

• SCORE!

Wacky Ideas

First, the weekly sales report.

While Wall Street continued to crash and burn and all the economic indicators took a dive…while NPR aired a show about what to do with all the vacant stores after the upcoming “retail Katrina”…Curio City blithely turned in another nice week. With a day and a half left to go, I’m only $40 short of LY and within striking distance of plan. Having already demolished LY and achieved plan, October is certain to be one of my best months yet. Enough cash is flowing again to bring in another new product or two before I have to switch to reorder-only mode. I intend to order something cool from a new vendor next Monday -- without relying on credit.

When you put these last two strong weeks together, my paycheck is the fattest I’ve seen from routine business since mid June. It’s still not a lot of money (as I always hasten to add). It works out shy of $4 per hour, which is just half of minimum wage. But still…that’s about twice what I was making at this time LY. If Curio City can keep on defying gravity, I could be earning minimum wage by this time next year. That would be quite a milestone. (And as I also hasten to add, this doesn’t include the year-end profit that I’m going to pull out of Curio City this year to pay my personal taxes).

My pay-per-click advertising charges are growing, too, so these sales are not coming without a cost. Yahoo has nearly doubled, thanks largely to some new-product keywords that I added. You have to spend money to make money, but Yahoo’s own tracking says that the $150 I spent there last month delivered only nine sales. That’s more than $15 per conversion! If their report tells the whole story – if there aren’t indirect or uncounted conversions – then Yahoo Search Marketing is clearly a losing proposition.

Which leads me to my first wacky idea: Discontinue YSM. Although killing it would definitely reduce traffic and sales, my metrics say that YSM is not cost-effective. My average sale is $44.21. Those nine Yahoo sales should therefore have grossed roughly $400 (I’d need a developer to customize their tracking code to capture the actual dollars). My advertising budget is 10% of gross. Therefore, $400 worth of Yahoo revenue would justify $40 in ad spending. I actually spent 37.5% of my YSM gross on ads. Losing nine sales and $400 per month would be regrettable. Saving $150 would not.

Next week I shall follow through with testing FaceBook’s PPC advertising. Perhaps that will replace Yahoo. I don’t have any tracking code or analytics for Facebook, but as I currently get zero traffic from them, I ought to be able to deduce the results well enough for comparison.

OK, maybe that idea’s slightly heretical, but something grounded so firmly in numbers is hardly wacky. Let’s go a little farther out.

I get periodic requests for imprinting or embroidering merchandise. Such inquiries are often for large quantities to be given to employees or customers. How hard can it be?

The most frequent request is for embroidered caps. An embroidery machine can cost anywhere from about $1,000 up to $16,000, with the median being around $7,000. There are supplies to buy, and a learning curve to overcome. I’d certainly ruin some of my merchandise until I became expert with the machine. It would take up considerable space that I don’t have. The customer making the inquiry invariably expects a hefty quantity discount as well as customization, so the markup is comparatively low. But sheer volume makes it tempting – these people typically want at least 100 pieces, and sometimes as many as 1,000 (or so they say; the likelihood of actually closing the sale decreases in proportion to the quantity that the person supposedly wants). It could potentially bring a lot of dollars over the transom, even if the markup is poor. But I would need to sell one shitload of caps to recoup a $7,000+ investment.

Assuming that I could get around the space problem, is that a good way to spend my time? How many hours would it take me to set up the machine for a job, feed it 100 or more caps, and then package them all for shipping? What happens to this embroidery machine and supplies after the cap business peters out? Do I become a novelty T-shirt store to justify my investment? No thank you.

Imprinting might be more realistic. A decent hot-stamping machine can be had for $3,000 or so. The space requirement and materials look a little bit less intense than embroidery, although they’re still substantial. The main drawback here is that the things people want imprinted come prepackaged. I’d have to remove them from their factory packaging, imprint them, and then shrinkwrap or otherwise repackage them. Again, this could get really time-consuming, and the markup isn’t there unless I’m buying enough pieces to import them directly.

The bastard child of imprinting is stickering. Customers like stickers least of all, and the investment is correspondingly lower. If I were going to test the customization waters, I might start with stickers. You might be able to do that with the same machine that does imprinting.

After mulling it over for ages, I decided to sell suction cups with my most recent Switchables reorder. They cost $0.15 each. I hope to get $0.50 each as a product add-on. The potential income from these things is less than staggering, and keeping them stocked might become a hassle if they sell better than I expect. But that hefty markup makes them worthwhile over the long haul. While I was going through my Switchables pages I discovered a couple of products that I’d taken off-sale some time ago, so fixing those was worth the time.

Selling batteries is another idea that keeps popping up. Many of my products require batteries. I could make a hefty markup selling them at the prevailing retail store price. Some customers might regard it as a convenience. Their limited shelf life is what always stops me. Batteries start to fade after a year or so, and I’d need to buy large quantities to get that attractive markup. I sell products that take C, AA, and AAA batteries, not to mention various coin cells, so it’s not like I can just stock generic “batteries.” And they’re heavy. They would inflate my shipping rates by more than I care to do. Still…it’s tempting. It could be easy money.

Importing stuff directly from China tempts me every now and then. The minimum order quantities are huge, and so is the risk if I make a bad bet. But the merchandise is extremely cheap (shipping usually accounts for half its value), so the potential reward is correspondingly huge. Becoming an importer has lost some of its appeal since the financial meltdown – my operating budget won’t generate that much open-to-buy, so I’d certainly need to use credit for that. End of discussion (for now).

Last, and probably least wacky of all, is looking into Google audio ads and display ads. Once again, the costs are considerable and I have no experience with them. But PPC advertising keeps getting more expensive, too, and it’s taken me about as far as it’s going to take me. I need to break out of that somehow.

Forthcoming:

• SCORE!

The Not-So-Great Depression

I’m going to keep reporting sales trends for as long as economic ruin remains the foremost topic on everyone’s mind. Hopefully that won't be for very much longer. I would be remiss to gloss over Curio City’s experience in the worst economy of my lifetime.

Except for a few hairy days, sales are surprisingly strong. The first half of October blew away LY and came in comfortably ahead of plan. That’s phenomenal in these circumstances. Maybe the financial pain has not yet seeped from the rich investors and over-indebted young people who are the worst afflicted. My customers tend to be a little bit older and more settled than the general population.

Although October's on track to be a very good month, sales targets for the next two weeks are steeper. Can I keep the streak alive?

That’s up to the American consumer. Curio City has no debt, but after paying Q3 payroll and sales taxes it hasn’t got much cash, either. Fortunately, most of my costs scale with sales. I have very few fixed, uncontrollable expenses and I keep an iron grip on my financials. My conservative, no-debt, bootstrap business model looks very prudent in light of current events. Of course, the business still doesn’t pay me a living wage, and it still needs to grow rapidly if it’s going to become a viable means of support. My paycheck only amounts to 25% of the $8 Massachusetts minimum wage. I could quadruple my paycheck if I got a job bagging groceries. (That doesn't include the year-end profit that I can pocket).

So Curio City’s viability depends on reaching some very ambitious growth targets: 75% in 2009, 50% in 2010, 35% in 2011, and 20% in 2012. Can I really strive for phenomenal growth during an all-out economic crash? Or should I wave the white flag now and look for a job after the holidays? Eight bucks an hour sounds to me like a lot of money.

What can I do to buck the tide?

Priority 1 is obvious: fix the max_connections bug. This is my single biggest frustration, and it’s entirely beyond my control. Why should I hustle to drive more traffic when that traffic brings my website to its knees? I found a third-party mod that is supposed to speed up Sunshop by reducing the number of MySQL connections. The latest Sunshop patch plugs a major security hole that’s making me very nervous. Eric says that he’ll upgrade me to the latest version and apply that mod sometime next week – if nothing else comes up. Of course, I’m not even sure that’s the solution, but it’s all I’ve got. I believe that sales from August to date would be at least 10% higher, and possibly more, if my site was reliable. Long term, I might move to a new web host and start with a fresh install. But I’m going to need a new developer first, and I can’t step up that search until Eric’s role is completed.

New merchandise always promises to drive growth. Among the things I’ve already bought, I’m most optimistic about the Fuzz scarf. I’ve got at least a dozen more products wishlisted (as always). But the cash isn't there. A big Switchables reorder took a whack out of my OTB this month. The minimum order quantity (MOQ) on my bestselling Mini Briefcase Business Card Holder quadrupled to 200 pieces; reordering those now would set me back an entire month’s merchandise budget. A company rep offered to reduce the MOQ to 100 pieces – still double what I want, but I can just barely swing it, so now I'm just waiting for a free shipping offer next Thursday (they wanted to charge me $75 to ship a box that shouldn’t cost them more than $25, tops). My supply of some Panther Vision cap styles is getting ominously low, and those reorders are budget busters if I want the best pricing. Anyway, with my cash either depleted or tied up, my Christmas lineup is mostly frozen unless I either start buying on credit (which recent economic events suggest is perilous) or use some of the startup cash that I’ve been hoarding all this time. I could float the company a $1,000 cash loan to be repaid out of December sales (assuming, of course, that the economic collapse doesn’t kill Christmas). But since my next startup CD doesn’t mature until early December, I’d need to use the credit card float anyway, using my savings as a backup to guarantee the December repayment. Whether Curio City borrows money from Mastercard or from me, it would mean carrying some debt for the next six or eight weeks. That makes me nervous.

I put out a newsletter advertising my new stuff last Wednesday, with no apparent results. Ten of the 220 emails that went out either bounced or unsubscribed. 78 people are known to have opened their newsletter so far (the tracking is imperfect). They’ve made only 18 clicks and no purchases. It’s certainly important to let my regular customers know what’s new, but the immediate payoff is always pretty small.

I still need to contact a SCORE (Senior Corps of Retired Executives) representative for meta-advice about my business strategy – my SCORE post was originally going to be this week’s topic, and might be next week's. My wife is nagging me about it. But this seems like a terrible time to look for big-picture advice. Even if I can find an internet-savvy retired retailer, what practical advice can anyone offer in this economy?

Speaking of my wife...she wants to sent out a media mailing in the hope of garnering some free press mentions. Every year we try this, and every year it fails. But the cost of trying is very low. If she's willing to put her time into doing the mailing, I'll put some time next week into creating the email.

I spent a little time following up my earlier musings about Facebook. Created a business page and a personal account, although I still don’t know what I’m supposed to do with them, and they have apparently garnered exactly zero interest. If any Curious Business readers happen to click that link, please leave me a comment or write on my wall or whatever they call it. I also stumbled across the interface for creating pay-per-click ads on Facebook. Hooray! PPC ads are something I know how to do. I might test a couple of ads there next week. Maybe I can eventually replace my perennially worthless Yahoo campaigns. New product ads have sent Yahoo’s cost northward of $5 per day, and it rarely delivers any sales.

An SEO newsletter persuaded me to join Twitter. It feels a lot like instant messaging with a bunch of strangers. I don’t think I can fake enough sociability to squeeze any value from this, but I’ll keep reading it for a few weeks anyway. Maybe an opportunity to pimp my merchandise will come up.

Once my website code is stable, I can implement many (free) third-party mods to Sunshop. Most are very minor, but taken together they’d add up to some nice improvements. Of course, I don’t want to do that until I have backup dev support.

There’s always the hoary old idea of hiring an SEO expert. That takes time to show results; it’s very expensive; and I’m not convinced that my pages need substantial optimizing (I’ve been writing my web copy with SEO in mind for a long time, and quite a few of my pages are rising on their own). It’s not a magic bullet by a long shot. But it's still one option for investing my remaining money. Maybe that SCORE idea isn’t so bad after all. I could use an expert second opinion.

Finally, I'm going to have to revisit those aggressive growth projections. Can I simply reverse the required percentages so that the big increases come during the anticipated recovery, instead of the depths of the crash? Or does that leave me too poor for too long? I’m going to have to get out the calculator again.

Coming Topics:

• Score!
• Wacky Ideas

Legal Extortion

As long as the world economy continues its accelerating collapse, the routine weekly sales updates that I had discontinued for being boring and insignificant (to everyone but myself) gain new interest. And so I hereby reinstate them.

Curio City is starting to feel the pinch. On Tuesday, when the Dow first closed below 10,000, traffic dropped by 50 visitors per day and sales dried up completely. Wednesday delivered a better-than-average six sales. They were all quite small, but the customers were there, and they were buying. Thursday was weak. Now, on Friday morning, equaling LY looks touch-and-go; the market appears to be cratering again today. Plan looks impossible.

Like everyone else, I’m at the mercy of events that are beyond my ability to even understand, much less affect. Pray, if you are the praying type, that all of this horrid background noise dies down soon. My sales targets rise for each of the next two weeks. President Bush is going on TV tonight to reassure the nation. Seeing President Bush always has the opposite effect on me.

********************

This post has been on the hook for ages because I’m a little bit afraid to publish it. Even the most innocuous things come back to haunt you when the law gets involved. But I’ve always been the fool who rushes in, so here goes….

Last December, I got a FedEx letter from some lawyer in New Mexico. Unexpected letters from strange lawyers are never a good thing. Somebody is suing the manufacturer of the Levitron AG levitating globe for patent infringement. They threatened to drag me into it unless I (1) stop advertising and selling the globe; (2) return my unsold globes to Fascinations; and (3) send them the money that I made selling these globes. They timed the letter to arrive during the one week of the year that Fascinations is closed, and gave me only 10 days to comply.

Yeah, right.

Fascinations offered to indemnify me against any future legal proceedings, and the amount of money involved is laughably small (I have sold exactly three of those globes), so I didn’t even answer the blackmailer. Background materials that Fascinations sent me made it clear that this extortion attempt is just harassment. Informal advice from two lawyerly friends confirmed that maintaining silence is the prudent response. So I’m ignoring it. I haven’t heard anything in the ensuing 10 months, but of course the law moves at a glacial pace. It could still come back to annoy me someday.

A friend who watches daytime TV told me that our local TV Channel 4 stole my name. They have a news segment that features some oddball story about Boston. They call their feature “Curio City”. The words “I am curious about…” animate, “curious” morphs into “curio”, and the word “city” rises from a silhouette of the Boston skyline – or so she described it. I haven’t actually seen it myself.

If one bad extortion attempt deserves another, I’ll bet I could make them stop using it, or maybe even pay me for the privilege. I own the service mark “Curio City”. I have three friends who are intellectual property lawyers. But since the TV folks aren’t selling anything, I can’t imagine how showing the words “Curio City” on TV every day can possibly be a bad thing for Curio City Online. I don’t think it harms my brand. Maybe it will even send me a misguided visitor or two. So I choose to ignore it unless somebody tells me otherwise.

A few months ago a telephone caller told me that a consignment shop in Lacey, Washington is also using my name. She says that their store’s door refers customers to the website “shopcuriocity.com”, which I happen to own. When that URL redirected her to my store, she called to find out if I was affiliated with the store in Lacey. Because they are a retailer, and because they presumably own a URL that’s close to one of mine, this could potentially be more serious. Yet, none of the variations on my URL that I tested led to a store in Lacey, or anywhere else. If there’s a conflict, I’m not seeing it.

While I was searching on that, I discovered that “curio city” returns my store in Google’s #1 natural search position. Hooray! That’s real progress – so much, in fact, that I finally dropped my name from my paid keywords. I’m also #1 on Yahoo. My only brand competitors are a Curio City antique store in Beijing and a shop in Birmingham, England, whose nature I can’t quite determine. It looks like I really do own the name, as far as the search engines go, so I feel no compulsion to sue anybody.

Now if I could only remember what Dale told me about having to renew my service mark after umpty-ump years.

Forthcoming Topics:

• SCORE!
• Wacky ideas

The Zombie Store

Before I raise this topic from the dead again, I ought to mention the economic news that still overshadows everything. Congress has larded up last week’s failed bailout bill with $100 billion worth of “sweeteners” – or bribes, more accurately – that might grease its passage through the House today. Conventional wisdom now says that if the bill passes, we are merely facing a deep recession. If it doesn’t, we’re facing complete economic meltdown.

That would suck. I wonder if it's true.

Last week's sales started out strong, and then weakened with each passing day. The first fiscal week of October still blew away both LY and plan, simply because LY was so weak. Still, I'm content with average sales, under the circumstances.

And that’s a good enough segue into today’s subject: The Zombie Store.

Eventually Curio City has to grow up and get its own place. Yet, only two months each year bring in enough money to cover a rent payment. It’s going to be a very long time before revenues rise sufficiently to cover commercial rent the other 10 months. By that time, my November and December business will have outgrown my ability to handle it.

This conundrum always points toward opening a store. Its purpose would be shipping/receiving for my Internet business, while producing just enough additional sales to cover its own expenses: Rent, utilities, and 1-2 employees. Even though I slew the store once after considerable anguish, the concept is going to keep coming back from the dead until the underlying problem is solved.

(Incidentally, the financial meltdown makes me really, really glad that I decided against borrowing big bucks to open a store this year. I would surely be facing final failure right now).

While I was killing the store, I mentioned once that maybe Curio City should always be a home-based business. This heresy was discussed very briefly during Wife Summit II, and then dropped. Today I’m going to resurrect and explore it.

The zombie store keeps arising because my commercial space has to bring in enough money to cover its existence; web sales can’t subsidize such an albatross. But I can justify feeding a money pit if it fills more than one purpose – such as housing.

Why, exactly, does CC need to move in the first place?

1. Our house is too small. We run two businesses out of a 1,100 square foot “starter house” that we bought 20 years ago. My wife is a pack rat, and my merchandise needs storage space. The house is simply stuffed to overflowing.

2. It’s configured all wrong. My office is a closet on the second floor. My warehouse is a dark cave in the cellar. My loading dock is an ordinary door on the first floor, with steps down to ground level. When sales are good, I spend a lot of energy running up and down stairs. It couldn’t be less efficient.

3. It’s inseparable from our living space, so I can never bring in an employee. That means I can never get sick or take a long vacation. I have to work ~350 days a year.

My wife (Anne) and I would both like to trade up to a larger house for personal reasons. The ideal time to do that would be at the bottom of the depressed market – probably 12-24 months from now, say the prognosticators. That’s also about when I expect Curio City to need more space.

To serve as Kraken Enterprises world headquarters, the new house would need these characteristics:

• Two offices (repurposed bedrooms), ideally on the first floor;
• Two actual bedrooms and bathrooms (one for us, one for guests);
• Warehouse space on the first floor (a heated garage or utility room, or another bedroom);
• Easy drive-up access to the warehouse;
• Secure entrance/exit, separate from the rest of the house, so that an employee could come and go in my absence;
• A “public” bathroom for my employee and Anne’s students;
• Another area where Anne can teach her classes; and
• Proximity to commercial shipping outlets (post office and UPS store).

That’s a tough list. I count four to six bedrooms and three bathrooms (the public one, a private one, and a guest bath). That is a ton of house to expect for $500,000, particularly if we want to stay in a desirable neighborhood and not move out to some damned suburb. But we might just be able to swing it if we can buy at the market bottom. I can’t justify buying a new house purely on its merits as living space. But if it doubles as the zombie store (and if Anne is running her classes out of it, too)…well, suddenly it makes sense. Some of the money that Curio City would have spent on rent would instead offset our utilities and expenses, just as Curio City already reimburses us for telephone service and gasoline.

Unfortunately, we have a $0 down payment, almost no savings, and $40,000 worth of personal debt. Could we churn the equity in this house into a new house? In the pre-crash credit market, no problem. Now it’s going to depend on how the mortgage industry gets restructured. Our house is worth roughly $200,000 more than we owe on it. Subtract the equity loan, subtract some repairs and spruce-up, subtract the costs of selling and moving, and we would still come out $100,000 in the black. That’s a 20% down payment on a $500,000 house. The logistics of financing and moving are scary, but shouldn’t be unsolvable.

One large problem remains: It’s a residential address. None of the carriers will provide business services to a residential address, nor would I ever get volume shipping rate discounts. I’d still need a commercial place to accept deliveries, and I’d still need to drive my shipments to the post office/UPS outlet every day in my little Miata. I’m going to outgrow the UPS Store within the next year or two.

Maybe renting a storage facility could fill this gap. Anne says that you can arrange for one to accept deliveries. But now I’m back to paying rent again, and that inevitably snowballs into opening a store that will pay its own way, and that in turn negates the whole home-business argument. Outsourcing order fulfillment is another (expensive) non-store option that negates the arguments for being home-based.

So I just solved nothing by spilling all of those words. Well, I’d like to keep this idea warm. If we discover that we just can’t do it, I’ll resurrect the zombie store yet again.

Forthcoming Topics:

• SCORE!
• Legal extortion
• Wacky ideas