Welcome to Curious Business

Every Friday, I post a small insight into running Curio City and/or Blue Hills Editorial Services. My most recent posts are directly below. You can also start with the first post, or use the subject labels to the right to home in on particular topics. Feel free to comment on anything that interests you.
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Friday, February 26, 2010

Software Bugs Me; Numbers Make It All Better

Everything we ever do comes back to us someday. My education in writing has never earned me much money, but it pays off daily in my website text, my newsletter, and this blog. When I realized that my English degree was useless, I washed up in the bookstore business and learned how retail works. Hatred of shopping malls eventually steered me into a science museum gift shop where I learned a few things about selling non-books. I dulled the boredom of that dead-end career with an obsessive computer gaming hobby; in DOS days, that meant learning the technology necessary to make them run. The death throes of the bookstore industry propelled me into PC game development. Now I’m doing something that I cobbled together out of those writing, retail, and computer skills.

Lately I especially appreciate the unhappy year that I spent testing broken games in Quality Assurance, because most of the programs that I use today are crippled to some degree. Take Simplaris Blogcast, the fragile little app that spews the first few lines of these posts to my Facebook fans. Last Friday it crapped out with this message:

Error: Failed to get posts
SQLSTATE[HY000]: General error: 145 Table './Blogcast/posts' is marked as crashed and should be repaired

Lovely. I couldn’t fix that myself, so I went looking for someone who could. The Simplaris website doesn’t mention Blogcast anywhere; however their name got onto it, they’ve apparently washed their hands of it. The real creator’s website comes up 404 Not Found. Now I’m stuck using this abandonware because integrating this blog is important to my nebulous FB strategy and I don’t know of any other program that does it. While I debated whether to reinstall it for a third time or abandon it myself, it suddenly cleared up. Whether somebody repaired FB’s MySQL database or the program miraculously healed itself, it’s fine now -- until next time…which I fully expect to be moments after I finish writing today’s post.

Sunday’s Sunshop upgrade from version 4.2.0 to 4.2.2 went smoothly. But hours later, a customer complained of the dread PayPal mystery loop bug. Crap! I had thought that this patch addressed that, but I was mistaken; it actually fixed a different PayPal bug that I reported. Sometimes I feel like I work for Turnkey’s QA.

I wish that I were paid accordingly. I wasted three more hours on Monday trying once again to reproduce this bug. Once again, I failed. I abused the checkout procedure in every way that I could imagine with a variety of different products, and my test transactions went through properly every time. I’ve gotten only sketchy information from the customers who report this bug. They seem to be low-skilled computer users so they’re probably using Internet Explorer, and quite possibly an old version, but they can’t even tell me that much. Maybe they’re infected with spyware or viruses (as most unskilled users are). For reasons that you won’t care about, I think that there’s more likely something wrong with their computers than with them. My strongest suspicion is a cookie problem – once they encounter the loop, these customers can’t escape it even in subsequent sessions -- but none of them have been able or willing to delete their cookie and try again. It’s almost like they don’t even want to volunteer in the Kraken Enterprises QA department!

Ordinarily I would take this bug to Turnkey or pay my developer to figure it out, but the first thing a developer needs is steps to reproduce. You can’t fix a bug that you can’t see. And so the PayPal loop endures. I’m sure that I’m losing some sales to it, but I don’t think it’s very many. It’s mostly embarrassing and frustrating.

Sunshop 4.2.2 wasn’t a total waste, though. It introduces a one-page checkout screen that might improve conversions very slightly (possibly even offering a workaround for the PayPal loop…not that I can test it). It also integrates a plugin called ShopBuddy that exports my product catalog to a Facebook tab. Now users can browse my store without leaving FB. I don’t understand why anybody would want to do that, but I don’t understand the appeal of FB in the first place. So I’m doing a 6-month free trial of a program that will supposedly cost $8.99/month starting in August – that’s more than I pay for web hosting!

OK, so my blog and my store are integrated with my FB page. It even has a newsletter signup form. I think it’s time to use the $25 FB ad credit that I’ve had since Dec. 9. Should I advertise a particular product or my store in general? Generic advertising has always flopped before, but FB is entirely about the mass market; I don’t think that I can promote anything other than my page. Is that worth doing? Maybe I can buy an answer if I match that credit with $25 of my own. I don’t expect it to drive sales directly, but getting new followers could make it worthwhile.

March will need a little goosing after a February for the record books. Only seven of my 50 months in business have surpassed this February, and six of those seven months were Novembers and Decembers. Just look at these numbers.

February, the Miracle Month:

Total income: +148.6%
Total COGS: +180.3%
Payroll: +114.8%
Net Income (Profit): +133.7%

Year to Date:

Total income: +62.3%
Total COGS: +93.6%
Payroll: +78.5%
Net Income (Profit): +149.8%

I ought to just retire right now. Those numbers will never look better than that. The Cost of Goods Sold is slightly worrisome; that should track total income more closely. But that’s looking for the dark cloud inside a silver lining. Get this: My advertising spend is only up 2% over LY! Consumer confidence hit its historic low point in February 2009, so beating LY ought to be easy for any retailer. The economy still sucks, but less than LY.

March’s target looks achievable until week 4, when I had another one of those outlying corporate sales last year. I’ll be happy if I can get over that $1,200 bump and finish flat with LY.

Friday, February 19, 2010

Taxes and Profits and Shares, Oh My!

My corporate tax return is amazingly complex for such a small, simple business. I’m not even sure about the size of Kraken’s profit. “Ordinary business income” was $7,018. “Income reconciliation” from Schedule K came out to $5,999 – pretty close to my $5,900 estimate. One of those two numbers is my personal taxable obligation. The number on my state return is midway between those two values.

I spent a lot of time on taxes this week. I e-filed federal and state returns for my mother-in-law, pored over the Kraken returns, and paid my annual $456 excise and $109 registration to the state. Then I did my part of compiling our personal return. Now it washes up on Anne’s desk, where it will molder until April. She gets a one-week grace period before I start nagging.

Although I didn’t take out the whole profit upon which I’m taxed, I technically made $17,888 last year if you use the higher K-1 figure or $16,869 using the lower one. Either way, Kraken’s profit was almost half of my income. Is that excessive?

Like taxes, it’s complicated. K-1 income is immune to Social Security and Medicare taxes, but I leave roughly 25% of it in the company (retained earnings) to fund growth. I can’t take out my share until December sales define the number; that’s when I get my best paychecks and need the bonus bucks least. It’s tempting to funnel most of that “extra” $7,000 (or is it $6,000?) into payroll, where I’d lose more to taxes but get to collect it throughout the year and make my W-2 income a little less embarrassing. But as the bankers say, past performance is no guarantee of future results. I underspent on technology and site improvements last year. Spending the budgeted amounts this year will reduce the bottom line. It’s tempting to skimp on these investments to keep the profit up and the shareholders happy. But you have to spend money to make money; if I do it right, it will pay off in increased sales and bigger profits.

Besides those quantifiable considerations, any number of other things can threaten Kraken’s profit and reduce my own annual income.

Take, for example, the postage hike dilemma. I wrote about the fine art of shipping a couple of years ago. Postage fees and outlays comprise about 15% of my cash flow; I need to get them right. Years of experience have brought most products’ shipping fees and costs into line (with a very slight bias in my favor) despite such complications as flat-rate boxes, dimensional pricing, residential delivery surcharges, and more.

In January the USPS raised rates on Priority Mail and Express Mail; First Class and Parcel Post rates stayed the same. Customers usually choose the least-expensive Parcel Post option, and I've always upgraded those orders to either UPS Ground or Priority Mail. The upgraded price is still at or below my actual cost, the customer gets better service than they paid for, and everybody’s happy.

Or was until now. Priority Mail rates went up and Parcel Post did not. That means that my shipping costs rose while the fees I collect – which come from rate table lookups -- didn’t. The advent of zoned pricing sometimes makes West Coast upgrades a losing proposition. Shrinking the small spread between fees collected and costs paid out is harming my bottom line.

To rectify that, I could:

  1. Raise my handling fee. But that penalizes my First Class, UPS, and east coast customers.
  2. Increase product weights. But that punishes my most desirable customers – those who buy multiple products at once.
  3. Eliminate Parcel Post. But taking away the lowest-priced option would make my shipping charges visibly higher and harm a competitive advantage.
  4. Leave everything unchanged and accept the smaller spread. But that makes it more difficult to reach my sales plan (which I calculate based on net sales after shipping costs) and ultimately comes out of my pocket.
  5. Actually ship via Parcel Post more often. But shipments that now take 2-3 days would take 7-10 days. Customers won’t like that.

For now, I’m watching number 4 nervously. If the higher Priority Mail costs ding my net sales too badly, I’m going to have to adopt either number 3 or number 5.

Friday, February 12, 2010

Kicking It Out

Unlike the current generation of young adults, Curio City needs to move out of the house before it can grow up. My inventory is limited by physical space and by my own ability to handle it, and my office functions are limited by my available time and expertise. My current glide path should grow net sales from $25,000 in 2006 to $123,000 in 2020. That’s impressive for a one-man home business, but it’s not enough to cash in and retire. And it will crash and burn if I lose my health or vigor. My 53rd birthday is approaching. Can I count on being strong and able-bodied for 10 more years? Can I continue to work 365 days a year that much longer? Do I want to?

Motivated readers can click the “planning,” “moving elsewhere,” and “opening a store” tags to read my previous grappling with these questions. For the less-motivated, the Cliff’s Notes are these: I can’t overcome my personal limitations while my warehouse is in the cellar and my office is in a closet. Renting an external facility brings huge new costs that are financially justifiable only two months out of the year. That has always suggested opening a store whose main function would be to service my internet business while adding just enough new sales to pay its own expenses – essentially a warehouse/shipping facility with a small showroom and a sales counter. If I’d done that a couple of years ago (as I nearly did; see Ding Dong, The Store Is Dead!), I’d surely have gone belly-up in the Great Recession.

What do American businesses do when they want to grow but can’t afford to pay Massachusetts rents and labor costs? Outsource! A reader first suggested this in a comment on The Zombie Store. Most American “manufacturers” handle their own design, sales, and marketing in-house, then outsource production to Chinese factories. Those ship the finished goods to a third-party warehouse that fills orders for many clients – including most medium to large web retailers. Using a fulfillment service would solve the hardest part of kicking Curio City out of the house at the lowest cost. It’s wicked expensive – somewhere around 25% of gross sales, I think, although I haven’t actually priced it out yet. But that’s still cheaper than renting my own space and hiring my own worker. The other disadvantages that would arise -- reduced quality control, difficulty handling returns and damage claims, dealing with foreign sales and expedited shipping, etc. – must be surmountable.

The next challenge is paying for this fulfillment service while still meeting all of my existing expenses. Offloading shipping only saves a trivial amount of money, since I currently do all the labor myself. The warehouse’s access to bulk shipping rates might cut costs somewhat. But the incremental growth in my current sales plan can’t begin to cover a new expense of this magnitude. I’d need (pure guess) to quadruple my annual sales to pull it off. It’s a chicken-and-egg question: How can I quadruple sales without bolstering my fulfillment ability, and how can I improve fulfillment without quadrupling sales?

I know: More outsourcing! I myself am the next impediment to growth; I suck at marketing and don’t understand advertising at all. All I know is pay-per-click advertising, very rudimentary self-SEO, and my blog, newsletter, and Facebook. So coincident with outsourcing fulfillment, I’d have to hire a marketing firm. Even a modest professional campaign should quadruple my sales overnight – again, though, at great expense. Even a modest effort by a small firm would cost (guessing) around $10,000…plus media buys.

OK, suppose I’ve worked that out. I've quadrupled my sales and I’ve got someone else filling them. Rapid growth brings more challenges. Sunshop has served me adequately so far, but I would probably need to develop and maintain a custom website. More outsourcing, more new expenses. I’d also need to streamline my procedures and automate some of the daily grunt work that I do now.

Then I’d need to rethink my merchandise strategy. I mostly buy small quantities from importers -- a couple hundred dollars for a couple dozen pieces of something. I’m content to sell a dozen units of something in a year; my biggest hits sell a few hundred pieces. I don't know if I can quadruple the supply of some of my big sellers. I’d need to buy directly from manufacturers rather than wholesalers more often. I’d probably need to import some stuff directly.

Finally, I’d need to change the way I finance my company. I doubt that I could run a quarter-million dollar enterprise on credit cards. I ought to establish Net 30 terms with a few vendors to build some credit references.

Risk is always outside of my comfort zone. I hate depending on other people; quality suffers, and sooner or later they always let me down. I’m not fond of change in general. But ultimately this business must grow bigger than I can handle alone. I can imagine reaching a state where I spend most of my time finding products and managing contractors.

I’m thinking about all of this again as another very good week winds down. Monday brought an unexpected Valentines Day rush of 14 small transactions. Tuesday brought 11 more. I might double LY's sales for the week.

I won’t take on debt until I’m confident that the economy is really recovering. But I ought to start exploring costs so that I can start thinking about where I’ll raise the money. Depending on how much I need, I might even try to raise some of it from friends. A five-year track record of building a profitable and growing business through the Great Recession should make Curio City an attractive investment opportunity.

Friday, February 05, 2010

Get Back to Work, America

Remember last week’s spin about having to make up for a $1,200 sale in January 2009? Well, guess what landed this week – a $1,250 lighted cap sale to the very same customer who pumped up last January…followed hours later by a $550 cap order from another repeat customer! Monday ended just $75 short of breaking the one-day sales record that was set the day after my NY Times gift guide mention in December 2008. In February!?!

Yes, in February. More $100+ orders and the expected smattering of little ones made this my best non-December week ever -- by far – and there are still two days left to go. On the fourth day of the month I’d already surpassed all of February 2009. If sales merely meet expectations for the rest of this month, I’ll finish February with a comfortable lead over my YTD sales plan. This month is going to be phenomenal…and impossible to match in future years, but let’s worry about that in future years.

To celebrate, I gave myself another raise. Payroll has finally reached my long-term goal of 20% of net sales. I intend to leave it there permanently.

Last August I predicted “the potential for a real boom – possibly even one whose proportions will mirror the recent collapse.” I backed off from that when a dismal December took the wind out of my sails. Now I’m feeling that wind freshening. If Americans really are getting serious about consuming again, that epic boom is not just fantasy.

Of course, this remarkable week could just be a fluke. Curio City sure isn’t going to hire anyone soon; I’m too cautious to borrow money and expand when it’s still not even paying me a living wage. Just last week I was pessimistic enough about the economy to move a chunk of my own Roth IRA money from stocks into bonds.

Today, though, I feel uncharacteristically optimistic. Obama’s small-business loans and tax breaks are making me think for the first time in years about expanding Kraken Enterprises. I don't think I've written about Curio City's long-range future since January 2008; maybe I'll ponder that again next week.

So come on, American businesses: you’re going to need more employees to man the rigging. At least hire my wife. Please? Somebody?

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