Exploring the Amazon

A pitchman from an online retailer called Amazon.com tried to sell me on listing my products there. If I bit by the end of last week, they’d have waived the $40 subscription fee for the first month.

Forty bucks a month to reach millions of potential customers? What could possibly go wrong? I watched their tutorials to find out.

The monthly fee is trivial compared to the 15% they skim from the top of every sale. My budget line items – payroll, advertising, bank fees, shipping supplies, etc. – are based on a 50% overall markup after discounts and incoming freight charges. Most of my products are in the 45-50% range. I won’t go below 40%. A few standout items bring in 60% or better, but those tend to be low-priced products of dubious quality. I’ve managed to achieve an average 48.62% markup, meaning that I spend $5.138 out of every $10 to buy merchandise (that’s the “COGS” in my monthly sales reports).

Forking over 15% to Amazon would blow everything away. My company might survive on a 33% margin if sales quadruple; many high-volume operations get by on less. High-volume, low-markup business is so far outside my experience that I’d have to morph into something very different from the one-man, home-based operation that I’m comfortable with now.

I could stock an Amazon storefront only with high-markup products and raise prices on other merchandise that doesn’t have many competitors. Amazon’s 15% cut includes the payment processing fees that currently devour 4% of my sales, so I’d really “only” need to cover the 11% difference. Either keeping my markup where it needs to be, or living onless, would be difficult with Amazon sapping it, but it’s not impossible.

The lack of integration between my Amazon storefront and my Sunshop store is a harder challenge. Their salesman didn’t know anything about third-party shopping cart integration. He vaguely suggested that I google it. Wow, I never would’ve thought of that!

How can two web stores share the same inventory if they don’t communicate? Trying to keep the two in balance manually would surely create out-of-stock situations and increase inventory errors. To get around that, I’d have to allocate separate inventory numbers to each store: That is, if I have 100 widgets, Sunshop and Amazon each get 50. Firewalling my inventory would require keeping more pieces on hand than I do now – my many items with only 3 or 4 pieces in stock wouldn't appear in both stores. Running two separate stores that happen to share a name and some products – Amazon for high-markup, high volume stuff and Sunshop for everything else – also raises some thorny accounting/budgeting challenges that I won’t bore you with here.

Setting up the Amazon storefront is not trivial, either. Their listings require UPCs, for example; I currently don’t use those at all. Curio City's shipping charges use realtime carrier rate lookups based on product weights and shipping destinations; I’ve honed that system over the past five years to cover my costs without overcharging customers. Amazon uses fixed shipping tables. One must set a base rate plus increments for either the number of items purchased or their value. Making Amazon’s shipping charges line up with Curio City’s would take a lot of finagling…or require Curio City to use fixed rate tables, too. Some customers might prefer that, but it's less fair.

The biggest objection, though, is this: Amazon is the very definition of mass market retail, and Curio City is its antithesis. I don’t think of Amazon as a competitor so much as an unrelated entity. People shop there for consumer electronics, small appliances, software, and…um…well, I’m not sure what else, not being a shopper myself; that’s all I’ve ever bought on Amazon. I’m reasonably sure, though, that they aren’t looking for offbeat gifts or impulse items. The concepts might be inherently incompatible; I might wind up running two different stores with little crossover.

I tried a similar path years ago with an eBay store. That was more expense and hassle than it was worth. Dealing with combative eBay bargain-hunters was not at all pleasant. Amazon probably gets a better-quality customer, so I probably ought not to let my eBay experience cloud my judgment.

The prospect of reaching a huge audience and potentially moving large numbers of at least a few products is tempting enough to make me ponder these hurdles. Just putting Curio City’s name out there might be worth $40 a month even if the storefront flops. As I told their salesman, though, I can’t try it while my own store is gearing up for Christmas. Two months from now I’ll be struggling to keep up with the business I already have.

I’ll revisit this idea going into next summer’s doldrums.

President Obama Thinks I'm An Idiot

Obama has a plan to jumpstart small business growth. I have been wondering if I’ll ever get to belly up to the free money trough along with the big guys. Not yet.

What’s Obama’s bold plan?

1. The Small Business Administration will step up lending guarantees. The SBA currently guarantees payment on 85 percent of a loan up to $150,000 and as much as 75 percent on loans of more than $150,000. The administration is raising the guarantee to 90 percent, reducing lender risk as an incentive to lending.
2. In addition, fees of as much as 3.75 percent of the loan's face value are being waived effective today, and people who obtained loans and paid fees since Feb. 17 qualify for a refund of those fees.
3. Obama ordered the Treasury Department, effective March 31, to begin using as much as $15 billion from the $700 billion bank rescue fund to purchase SBA loans on the secondary market, freeing up bank liquidity to make more loans.

That’s it? Another bank giveaway?

He is trying to trick me into taking on debt so that I will grow big enough to fail. But I am not the idiot that he thinks I am. If/when I do borrow money to expand, I won’t involve the federal government. Kraken Enterprises has almost four years of history and two years of demonstrated profitability. Any banker should regard me as a good credit risk.

An SBA loan becomes available only after you’ve been rejected by a private lender. The SBA then guarantees a loan from the same bank that just turned you down. Obama’s bank-friendly largess will undoubtedly make banks more likely to turn entrepreneurs down in the first place, forcing us into the guaranteed arms of the SBA. A cynic might see here a backhanded attempt at nationalizing small businesses.

According to the Internet (distilled from multiple sources), SBA loans carry these advantages and disadvantages:

ADVANTAGES:

1. An SBA loan can be stretched over 10-20 years, vs. seven years for typical bank loans;
2. The SBA will lend to businesses that are in trouble;
3. The SBA supports areas in which no financial institution would otherwise bankroll new businesses.

DISADVANTAGES:

1. The SBA places a lien on the borrower’s property. If I default and the SBA has to pay off the guaranteed principal, it will go after my personal property and assets to protect the taxpayer.
2. SBA loans take up to six months to process.
3. The SBA may require the owner to put up 20% of the funding himself.

Clearly, this move is meant to be a credit lifeline for businesses that are in trouble. It is certainly not going to persuade anyone to take on debt and expand. Not me, anyway.

Sources agree that a borrower should enlist a lawyer and an accountant when negotiating a bank loan in order to limit personal liability. I will tell you this much: I absolutely will not risk my house to borrow money for my business. If that dooms my business to remain tiny forever, so be it.

Obama said that these measures are “a first step”. I will wait to see the next step.

*****

Here’s a little more hatred in the credit card processing field…American Express reclassified my business to Internet Sales and raised my discount rate from 3.25 to 3.5%. I have no idea what my old classification was. American Express doesn’t use resellers, so there’s no appeal or competition – you pay them what they tell you, or you don’t offer Amex. Since the new classification is obviously correct, I’ll resist the temptation to create a new “Reasons to hate American Express” tag.

Amex and Google nullified my effort to reduce credit card processing costs. I suppose changing credit card processors kept the overall increase smaller than it would have been otherwise. (sigh) I give up. The banking industry is determined to restore solvency at the expense of small businesses and consumers.

Google apparently implemented their no-refund policy a month early; my past five deposits have had fees totaling nearly $8 withheld. I emailed Google despite the trivial sum. They answered a completely different question than the one I asked. I restated it. They replied that "Our engineers are looking into it." O RLY? For the moment, I shall content myself with a new “Reason to hate Google”.


Next week's topic: Too Small to Fail

March On!

Steel yourself, dear Reader, for another long navel-gazing session. This one has one particular reader in mind.

Year-to-year sales comparisons are a little flaky because I’ve changed the way I define gross sales, and the way I chop the calendar into fiscal months. Last March was a five-week month, and this March has only four weeks. By any measure, though, last March was a bloodbath. It held 11 days with no sales at all (including a record six-day shutout streak) plus three more days with gross sales under $10.

This month started out looking just as grim. Postage costs sent the first two days negative. When I left for my habitual Tuesday bar night, my weekly gross sales had recovered to a whopping $1.22. Then a flurry of orders turned the month around. By Wednesday morning I had done 66% of last March’s monthly sales and a third of this year’s plan. As of right now, I’m happily looking at 90% of LY and 50% of plan. Even my deep open-to-buy hole is finally filling in. It’s astonishing how suddenly things can turn around. (And that cuts both ways; sales can, and often do, collapse without warning. It would not surprise me to go directly into a days-long shutout).

Here's a paragraph is from a draft of this post written on Tuesday evening, before I left for the bar:

“All of my choices look hopeless. “Steady As She Goes” is going steadily nowhere. “Curio Metropolis Online” seems like a pipe dream when I can’t even solve my current minor technical problems or find a new developer to knock off my extremely modest and oft-postponed upgrade checklist. And how could I possibly cover the rigid cost structure that comes with “Curio City Offline”: $2,500 for rent, $500 for utilities and insurance, $1,300 for payroll (that’s one minimum wage employee and not a cent for me), another $1,000 in debt service, hundreds more in assorted smaller bills…where does all that money come from??? I would need to gross a minimum of $12,000 a month just to cover core expenses and replace the goods sold, without making a dime for myself. That is ridiculous. There is simply no way a store is going to bring in that much money, not in March.”

What a difference a day makes. After three days without a single order, Curio City snagged 15 sales in three days, and the tenor of this post changed from despair to optimism.

T.C.O.B.

Before I return to my regularly scheduled anguish, two operational trends bear mention:

First: Since I upgraded PayPal from "standard" to “Express”, at least half of my receipts have gone directly into the interest-bearing PayPal account where I park my operating cash. Before the change, fewer than 10% of my sales went through PayPal. PayPal’s processing charges are about the same as credit card fees, without the annoying 2-4 day delay and the weird fee guesswork. The less business I have to put through CTS Holdings, the better. I loathe that credit card processor.

Second: For reasons unknown, I had several international sales last week – three to Canada, one to Great Britain, and one to Ireland. Although I’m ambivalent about the extra work and the uncertainty involved in exports, I am grateful for every sale I get, especially during March’s anticipated drought.

Incidentally, my original developer has unexpectedly found time to upgrade Sunshop from version 4.0.8 to the current 4.1.0. In addition to fixing a couple of obscure bugs, the newest version will finally let me enable the Google Checkout routine that gave me such grief. And it adds a shipping charge estimator to the shopping cart. Both of those additions are sure to improve conversions a wee bit – and given the increase in PayPal payments since I upgraded, I expect a lot of shoppers to use Google Checkout, too.

Crystal Balls

Why did I give you this long diversion about March sales?

Wife Summit II happens tonight at the Randolph Picadilly Pub, a homey place that has hosted many earnest discussions over the past 20+ years. This post is my last chance to lay it all out before I try again to force a conclusion. I have cash earmarked for Kraken Enterprises in the bank right now, with two more CDs maturing in the next six months. Will I finally spend the last of my inheritance? Will I roll it over for another year? Stay tuned….

(You might have figured out that I hate spending money. I only even had an inheritance because I was raised to be cheap. This is not exactly an entrepreneurial trait. Frugality separates the capitalists from the managers. I’m a good manager. The jury is still out on whether I’m a capitalist.)

This week’s unexpectedly strong sales emphasize the folly of changing direction while my business is still strengthening (in a recessionary climate, no less). QuickBooks says that YTD gross sales are 99.3% ahead of last year. Payroll – which lines my pocket – is running 75% ahead of LY. Net income – a.k.a. The Bottom Line -- is +145%. I must always hasten to add that the actual dollars involved are still low-budget, and I’m still poor. But despite my puny scale, the year-over-year improvement is undeniably dramatic. Now that I know how profits work, “Steady As She Goes” could almost double my personal income over LY. If I don’t change direction, I can take out some profits in December. Again: It’s not very much money, but how many people do you know who might double their income this year?

I know how to evolve “Steady” into “Curio Metropolis”: Increase and improve my merchandise selection…improve my organic search results…and raise my conversion rate. I understand how to do all of those things in theory, if not in practice. None of it is beyond my ability to learn. An expert customer who took an interest in my blog very kindly sent me a long, detailed list of SEO instructions that ought to improve my organic traffic at very little cost.

Last week’s unexpected busy-ness kept me from reviewing my store financials spreadsheet. I’m still using numbers that I compiled nine months ago. But I don’t think it’s going to change much. My calculations are correct. The most important starting assumptions (rent per square foot and sales per square foot) still look realistic. I can tweak a few variables here and there, but it’s not going to change the big picture very much.

A store is expensive and risky. At best, opening and running one will freeze my web business at its current level as I put it into caretaker mode. More likely, the store’s ravenous demands will force me to mothball the website entirely for at least a few months. At worst, the store will drag the website into bankruptcy as it goes down. The short-term financials are downright frightening; I see no way to avoid losing considerable money coming out of the starting gate. A store might offer the best income potential in the medium term (about five years), when the loan is paid off and I’ve worked the kinks out of my merchandise, advertising, and operations -- if it survives that long. But in the long run, you can only put so much stuff on the shelves and get so many people through the door. The internet is comparatively limitless. I always think of a store as a base for my web operations, rather than a goal in itself.

If I were forced to choose today – which is sort of the point -- this is what my crystal ball reveals: I stay with what’s already working (duh). I transition from “Steady As She Goes” into “Curio Metropolis Online” in an evolutionary way, getting constantly better at what I’m doing and investing money here and there as needed, rather than all at once. I won't need debt, and maybe not even all of my remaining startup money -- I could potentially spend some cash on personal needs instead. When the web business gets consistently too busy to run from my home – and I mean most of the time, not just for a couple of months – then I will open an offsite base of operations. This facility's main role is shipping/receiving, warehousing, and a place to employ help. It would be nice if it included a sales counter that earned enough to cover its own costs, but that would be secondary. For convenience, I'll refer to it as a "store", even though that isn't its main function.

When, Ken?

Sounds logical and practical, doesn’t it? How long would this process take?

I don’t know. My hunch, based on current growth, says that Curio City Online becomes Curio Metropolis by the end of this year or beginning of next. Curio Metropolis outgrows being a home business pretty quickly, and moves out either in late 2009 or late 2010 (assuming that its new home is a store, which has to open during the Christmas season). Late 2009 is my most ambitious projection, and late 2010 is my cautious one. Cashflow from the web should be substantial enough to subsidize the store while it finds its market and I iron out my inevitable mistakes. By the beginning of 2011 – about three years from now -- I would have a break-even store hosting a very profitable web business that pays me a living wage, and I would consider Curio City a mature business.

Look at it this way: Averaging five sales per day would produce enough income to help out with the bills. Ten sales per day would constitute success. Twenty would make me wealthy. So far this year, I’m averaging 2.25 sales per day. Getting from 2.25 to 5 does not seem that daunting.

Look at it another way: There are 6 billion people in the world. Maybe a billion of them participate in market economies. More and more of them shop online every day. At least 100 million of them make a lot of money. I just need to land 10 out of those 100 million people each day. Piece o' cake!

Asterisks and Fine Print

The first drawback is temporal. While I have a real shot at doubling LY’s sales this year, doing that year after year gets more difficult as the absolute dollars involved increase. My three-year timeline is a long way from guaranteed. Seventy-five percent of my business this year comes from one product line. That could peter out at any time, and finding something comparable is not even remotely guaranteed. There is very little that I can do if I find myself without at least one high-volume product to keep driving sales.

Anne has been supporting me for the better part of two years. I’m just now starting to make enough to keep myself in pocket money, and I’m nowhere near making a meaningful contribution toward our joint bills. We are both over 50 years old. We’re constantly postponing such goals as travel, housing upgrades, and even furniture and basic home maintenance. Our short-term, non-retirement savings are essentially gone. Anne’s being bled dry by consumer debt and parasites (me and her mother). Yes, Curio City should ultimately grow into our primary source of income. I’m counting on that. I have no other fallback. But how long is “ultimately”? We can’t wait 10 years. Even five years is an awfully long time. Can we endure three more years of tight money from a single income? How durable is my wife's patience?

None of my scenarios -- including opening a store – pay off any quicker or any bigger than the one I outlined above. The only reliable paycheck comes from a conventional job. At what point do I pull the plug on self-employment and try to get back into somebody else’s harness instead?

The second drawback is technological. I was an English major, for crying out loud. Understanding and solving technical failures, and keeping abreast of innovation, will always be a little beyond my grasp. “Steady As She Goes” cannot morph into “Curio Metropolis Online” until I can count on the services of an expert developer/webmaster – and the $90 per hour variety is not going to cut it when I’m earning $1.50 per hour myself. I should be spending my time searching for new products and creating web content, not trying to figure out why Yahoo hates me or why I’m getting 100 spams a day or why my Google page ranks are so poor or how my shopping cart generates H1 tags. I just spent over three hours figuring out that our internet connection died because I forgot to update the password in our wireless router.

I am better equipped to understand and solve the kinds of problems that a store will encounter than those posed by the Internet. I will always be behind the technical curve as long as the web is my primary emphasis.

The last drawback is logistic – physically moving and storing ever-growing quantities of merchandise, and ultimately moving it out of the house. My proposed path does not solve this. There is still a move to deal with eventually, and the impact of interrupting web operations grows worse as my sales get bigger.

So that’s all I’ve got. Anne still talks as if she wants to own a store, and I’ve pretty clearly acknowledged that I really don’t. She has an equal voice in the future of this business. Will tonight’s summit solve anything? By the gods, I hope so. I am sick of writing about this. I am sick of the uncertainty. I want to move forward.

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.

Curio Metropolis Revisited

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

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

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

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

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

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

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

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

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

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

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

o Perform future Sunshop upgrades in a timely fashion.

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

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

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

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

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

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

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

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

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

Here is the punch list that I can think of:

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

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

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

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

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

- Hire an SEO firm for ongoing, regular optimization.

- Find several major new products and advertise them heavily.

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

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

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

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

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

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

Hitting the wall:

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

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

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

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

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

Smashing the wall:

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

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

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

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

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

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

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

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

Back to the Futures

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Curio Metropolis Online Redux

Or, Back to the Old Drawing Board

The sales decline that began in “Unhappy Mother’s Day” got so bad this week that I thought there must be something seriously wrong. I had only two sales in seven days, plus a return that nearly canceled them out. Before two very welcome sales appeared yesterday morning, my gross income for this week stood at $12.04. That puts my paycheck at something below $2.00. Last week was my fifth worst ever, and this week is making a strong play for the second-worst of all time.

People are simply not buying. These long sales droughts happened a few times last summer. They weren’t supposed to happen at all this year, and certainly not in May.

My pay-per-click advertising is still delivering the usual 75-100 visits per day. My test transactions go through normally. The USPS raised shipping rates on May 14, and broke my international shipping module when they reconfigured their overseas services. But exports are too small a fraction of my business for this to explain anything.

Until now, my conversion rate has hovered reliably a little over 1% – one visitor in 100 buys something. Last week it fell to more like 1:500. Why? Why? Why? Maybe poor buying decisions took my store in the wrong direction. These kitchen towels went nowhere. I haven’t sold a single rain gauge or grill thermometer yet. My new cigarette cases have the features that a couple of customers asked for, but they might be too expensive (and two weeks after I ordered them, the vendor announced a 15% off sale! Grrr….). Those items alone tied up April’s entire inventory budget. I still think they're good products, and hope they'll find their market.

If I knew that bad merchandise is to blame, I could just invest some startup cash into more new gadgets and clocks – my best categories before sales collapsed. But I can’t waste seed money on a hunch.

Since I don’t know how to end this slump, I’m using my downtime for medium- and long-range planning. Despite some stubborn structural cost problems, my business borders on solvency. There’s nothing wrong that a big infusion of sales wouldn’t cure. So, how big an infusion are we talking about?

Let’s do a flight of fantasy. My bootstrap approach – building this business up slowly from my own resources, without taking on debt – is failing; only an impossibly stellar Father’s Day season can resurrect it. Suppose I abandon bootstrapping, and go instead for a quantum leap? What expenses would that entail? How much business would it take to cover those expenses?

This thought experiment explores the Curio Metropolis Online path.

Payroll & Consulting. First, I need at least $50,000 per year to live. That’s what I used to earn as a wage slave. Curio City would have to gross $325,000 annually (about 10 times last year’s sales) just to generate that salary. (BTW, as the only shareholder, I would pocket any profits at the end of the year, so I do have the potential to make substantially more than $50k.)

Second, I’d need a contract developer to tune up and improve the website on a regular basis. My own lack of technical education is my biggest handicap; I am always off-balance when something goes wrong. Right now my budget for routine web services is $500 per year. Let’s raise that to $20,000 per year. For perspective, that’s at least double what I’ve spent on technology to date, and twice what I intended to invest this year to reach version 2.0. I expect that outlay to compensate for my own ignorance.

Third, I’d contract with a professional marketing firm to design and manage a coherent ad campaign and media blitz. Currently, my marketing budget is a percentage of gross sales – which, as we’ve seen, are in the crapper. My budget pays for my pay-per-click ads, without much left over. Let’s allot $25,000 annually for marketing talent, above and beyond the existing sales-driven ad budget.

Fourth, to cover this new sales volume, I’d need a fulltime shipper/receiver; let’s say $10 per hour for 35 hours per week, or about $20,000. Toss in $5,000 for a rudimentary benefits package for myself and my shipper, and we’re at $120,000. I’d need to gross $750,000 to cover that.

Rent. I can’t run a $750,000 operation with a fulltime employee out of my cellar. I need commercial space. Let’s say I can cram all of my inventory, a cramped office, and a shipping area into 750 sq ft. Since there is no storefront to consider in this scenario, it can be industrial space in a poor location. Let’s budget $17.50 per sq ft., which works out to about $1,100 per month.

Other. I’ve always been nervous about having no insurance on my inventory; a cellar flood (which is not at all unlikely) would be a serious setback. Let’s say that rudimentary casualty & theft insurance would cost me $200 a month. My facility will need electricity, water, a telephone line, internet access. Call it another $200 a month for “utilities”. I’d probably have to come up with taxes, association fees, janitorial service, etc. Let’s budget $100 a month for that.

Debt Service. Here’s a huge expense item. I need to prime the pump for this new sales volume. Something a little better than a wild guess says that I’d need $150,000 for:

• Additional merchandise -- $125,000;
• Shipping materials -- $2,000;
• Office supplies -- $1,000;
• Shelving, furniture, etc. -- $2,000;
• Rent down-payment -- $5,000;
• Web developer -- $5,000 up front;
• Marketer -- $10,000 up front.

In this scenario I put in my last $15,000 of personal savings. I pretend that a banker would loan me $135,000 unsecured. Assume a 5-year loan at 8%, as I saw advertised today. Simplifying the compounding, $135,000 will cost about $189,000. Divide that by 60 months and you get $3,150 per month in debt payments.

OK, the assumptions are done. Whew. To the spreadsheet!

Wonderful things happen when sales increase by orders of magnitude. The percentage needed for payroll falls considerably, for example. Eventually I arrived at a magic number: $800,000 delivers everything that I detailed above, with a tiny profit left over. Curio City becomes very profitable after the debt is retired in five years.

$800,000. Wow. It’s a big stretch, but I’ve managed stores that approached that level of sales. It's not astronomical. My average ticket last month was about $30. I’d need 26,666 sales like that to reach $800,000. 73 sales per day. Yoinks. 32% of LY's annual business came in December, so I’d need 8,533 sales that month alone (284 per day!!!) November accounted for another 17%; that’s 151 per day. Which leaves about 45 sales per day during the slow part of the year.

I’m not sure I can envision that. Those numbers are mind-boggling from my perspective of 3 sales so far this entire week.

Next week I’ll give this same treatment to opening a store (Curio City Offline). I have a hunch the bottom line will be comparable.