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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, December 31, 2010

Thank Janus It's Over

I should’ve known 2010 would end with a mini-disaster: Sunday’s blizzard took out our Internet access. For most people that means being deprived of funny cat pictures and Facebook chatter. It’s a little more serious for an online business.

I shoveled for three hours on Monday to excavate Anne’s car for the short drive to Panera Bread to pay too much for coffee and free WiFi. But I couldn’t print postage (thank Janus nobody bought expedited shipping!) and therefore couldn’t ship the weekend orders. Tuesday morning, still no Internet. I couldn’t let the weekend go unshipped for another day. Anne figured out that I could at least create my Priority Mail labels at the FedEx/Kinkos shop; I wasn’t sure how I was going to handle First Class labels (USPS doesn’t sell those online). Our cable finally revived shortly after lunch on Tuesday and spared me that effort and expense, but not the anxiety.

Hmm…that’s a micro disaster at best and a boring story at worst. In fact, this post doesn't even merit a "Disasters" tag. It seemed like a fitting end for 2010, though. I was reminded how completely I rely, both professionally and personally, on technology that scarcely mattered 10 years ago. I am a lost soul without the Internet.

Here are the grim (Quickbooks) numbers:


Total income: -9.0%
Total COGS: -14.1%
Payroll: +2.5%
Net Income (Profit): -17.0%

2010 (almost) Complete:

Total income: +6.3%
Total COGS: +12.4%
Payroll: +13.5%
Net Income (Profit): -38.1%

Now it’s time to set 2011’s plan. Ignore discrepancies with the official numbers shown above; I use Excel for planning, and those numbers are typically a little grimmer than Quickbooks.

Sales have more than doubled since 2006, yielding a long-term annual growth rate of about 50%. But as you can see, most of that growth came all at once:

  • 2006-07: 14.8% (^ $4,142)
  • 2007-08: 61.5% (^ $19,722)
  • 2008-09: 15.6% (^ $8,102)
  • 2009-10: 2.9% (^ $1,714)

I need to sustain double-digit growth if this business is going to earn me a real living by the time I reach retirement age. But the rate is slowing as the dollars involved increase, my business matures, and both technology and popular culture leave me farther and farther behind. Needing and wanting 20% growth isn’t exactly a sound reason to plan for it. What’s a reasonable compromise between the number that I need and the number that I consider likely on my current glide path?

First, let's consider outside forces: The economy is noticeably quickening. Benighted states like Michigan and Nevada and California probably don’t see it yet, but progress is obvious here in Massachusetts. The $660 billion of new economic stimulus that Obama bought with his millionaire tax bribe will surely fuel the trend. Barring any shocks, the economy will exceed expectations in 2011 as even the worst state economies finally turn around, employment picks up, and consumers get back to consuming.

Counterbalancing that, the activist 111th Congress yields to renewed Republican obstruction and backsliding next week. Blocking new progressive legislation won't actively harm the economy. Real (not symbolic) spending cuts certainly will, though. Mainstream Republicans don’t have the stomach for cuts of sufficient magnitude to start another recession; they eat from the same trough as Democrats, after all. But the battle for control over their party in the 2012 election cycle makes the Republicans a wild card; they could do real damage if their newly energized fringe acquires serious policy influence while the party leadership is focused on destroying Obama (as it has vowed to do).

Does the national economy even matter? If there’s any relationship at all with Curio City, it’s inverse. The deepest year of the Bush Recession (2008) brought my best growth ever. The second half of 2010, when the economy gained real traction, is when my business started to slump.

So let’s set the economy aside and focus instead on my own history. If you throw out the outlier years then 15% is a reasonable growth expectation. Given 2010’s weak ending after a robust first half – as of August I was still running 30% ahead of LY -- I’m pessimistic about 2011’s chances. But 3% growth (or 6% by Quickbooks reckoning) is unacceptable. If that’s to become my new standard, I should pull the plug on this endeavor right now; I’d make a lot more money bagging groceries. So I’m going to split the difference between the 15% that is my birthright and the 3% of recent experience. Halfway between 3 and 15 lies number 9. Being unwilling to embrace a single digit, though, I’m going with a 10% plan this year.

My hunch says that I’ll fall short during the first half of the year and make it up during the all-important Q4, when 2010 unraveled.

Christmas 2010 is probably an accurate baseline. Both 2008 and 2009 enjoyed unexpected stimuli. In 2008, the NYT Gift Guide drove many of the sales records that still stand today. In 2009, the Boston Globe gift guide mentioned Whisky Stones on the same day that my last reorder happened to arrive, while Panther Vision introduced a new cap line. Supply problems created pent-up post-holiday demand for their new 3-LED caps, bringing surprisingly strong numbers during the last two weeks of December.

This past Christmas shows what happens when lightning doesn’t strike.

To bring these numbers down to the pocketbook level: I raised my salary from $10,870 to $12,417 this year. But my raw profit fell from $5,900 to $3,760. That adds up to just $16,177 of the $20,000 that I was looking for and falls slightly below last year’s $16,737 compensation. If I worked 40 hours a week for 52 weeks I earned $7.77 per hour – better than the “20 cents an hour” that Anne thinks I earn, but still a little below minimum wage. Using a more realistic 35-hour workweek brings me up to $8.88/hr. That makes me feel a little better.

Of course Kraken Enterprises can’t really pay out its entire profit. My rule of thumb has always been to take out 75% and leave in 25%. This morning I took the $750 needed to cover the personal income taxes due on $3,760, plus an additional $2,050 in free and clear bonus money to get me through next year’s slow months. That leaves $960 in retained earnings. And although it fell short of expectations, pocketing $2,050 makes me feel better, too.

Officially, this is a stockholder loan repayment, not a shareholder distribution. There’s some obscure advantage to repaying my investment and letting the company keep its whole profit, but I don’t remember what it is. I think it improves the company’s worth despite giving me $2,800. Kraken Enterprises still owes me $17,475 of the $28,500 that I invested in it so there’s still plenty of room for profits in that bucket…for whatever reason it is that I do that.

Next week: Ideas for restoring double-digit growth

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