The Great Migration Continues

For those who just tuned in: Mochahost is the worst web host ever. Googlebot, I invoke thee!

The new web server that Mocha spent four days moving me into died on Monday morning. I swiftly sprang into action. Just as swiftly, they declared it fixed…but when I went to verify, it was gone entirely. I lost another whole day of business. Repeated emails and Live Chat sessions brought no response until 7 pm, when I finally got:

“The issue was solved.

“I apologize for any inconveniences.

“Have a nice day/evening.”

News flash: You guys need to work on your communication skills. At least I confirmed my longstanding suspicion that Live Chat is just a deflector shield. And I got a new personal tagline out of it: “Have a nice day-slash-evening!”

So a fifth down day from Mocha finally forced my hand. On Wednesday HostGator ran a one-day 50% off sale, and I snapped it up. I committed to two years of hosting (with a free private SSL certificate) for $167.50, which is a little less than I would have paid to Mocha and GoDaddy for the same services over two years. I just finished the migration half an hour ago and reset my domain nameservers to point to the HostGator version of my site. At the moment Curio City exists in a Schroedinger’s Cat state, simultaneously open on the new host and closed on the old one. That should resolve within 48 hours.

The only downside that I can see is that HostGator’s free cert doesn’t provide an animated, interactive seal like GoDaddy does. That little boost to perceived security was a very nice perk of the $30 annual cost. OTOH, reinstalling a third-party cert every year was always a big pain in the ass that required cooperation from Mocha’s support people; it will be very nice to have that automated. And, of course, I expect a noticeable boost to both speed and reliability.

Superficially, May’s sales numbers don’t look like Mocha drove away any business. But if you subtract out one $850 sale at the beginning of the month the top line would’ve ended up $338 behind LY. The five days of business that Mocha stole (plus one lost to the moving process) would have been worth $484 (based on the corresponding days LY). So after those two adjustments, “normalized” May wound up about flat with LY.

Of course, that’s just blowing smoke. The official Quickbooks numbers look like this:

May:

Total income: +22.4%
Total COGS: +30.6%
Payroll: +89.3%
Net Income (Profit): -133.1%


Year to Date:

Total income: -10.2%
Total COGS: -16.3%
Payroll: -2.9%
Net Income (Profit): -2.7%

Paying HostGator for two years hosting up front blew the botton line away – my monthly Net Income was down by $136 because of $167 in “rent”. But that will smooth itself out over time, especially if I can persuade Mocha to refund my unused months (as if!).

June’s targets are a little scary. But who knows? Maybe having a better web host will make a difference.

Moving In Place

A tiny Mothers Day bounce came much later than expected. Sales surged to eight on Monday, fell to four on Tuesday, then dropped to background levels on Wednesday. One of those eight Monday sales was to a business that cleaned out most of my remaining unstructured 3-LED caps. I discounted them heavily and I threw in free freight and the credit card processor took its usual punishing fee, so it wasn't especially profitable and my cash flow crisis isn’t solved. But the infusion of dollars bought me some breathing room and I gained a little space in the overstuffed cellar. Best of all, this customer will probably come back. Gaining a happy new customer is always more valuable than any single sale.

I corked my Bottled Up Facebook ads after just five days. It cost $60.48 to convince myself that what didn’t work for Valentines Day wouldn’t work for Mothers Day, either. After 104 fruitless clicks the ad couldn’t possibly recoup its cost. Fool that I am, I might try it one last time with a different product for Fathers Day. FB ads are wicked expensive but they draw heavy traffic; I just can’t seem to convert it to sales. The one thing I learned this time is to hold off on advertising until the final few days.

This week was the best since my big spike in early March and one of the top three of the year to date. May should generate healthy numbers unless my web host kills me tonight, when they transfer Curio City from the boxster server to a new home “which will provide you with the following benefits (free of charge):

1. Upgrade to our latest hosting plans and latest cPanel control panel
2. Upgraded server hardware which will provide you with more reliable and faster server architecture
3. Improved server software
4. Improved network performance and network DoS/DDoS protection

“The account transfer is completely automated and no action is required on your end. You should not experience any technical difficulties with your site after the upgrade.”

That sounds reassuring. Several paragraphs of worrisome gobbledygook about IP addresses and DNS servers and SSL ensue. My developer (Brad, whom I’ve not actually hired for anything in nearly a year) assured me that it ought to be routine. Pray that he is right, for he shall be offline all next week, leaving me at the mercy of my web host if Curio City isn’t there when I wake up tomorrow. The worst case – which I always expect – would be a full week lost until Brad gets back.

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.

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.

Did You Miss Me?

Vacation was too short.

Last year, I took 10 days off at the end of July/beginning of August. This year, we were gone for only seven days during the same period. In both years, I suspended my pay-per-click advertising and posted messages about delayed shipping on my front page and my news page.

Rather than drying up entirely, business only fell by about 35% from recent weeks. Sales were nearly double LY’s vacation level. I think this means that my customer base is getting large enough (over 1100 unique user accounts) to make repeat sales more significant, and that my organic search engine rankings are finally improving. In other words, my core business is growing.

Sales perked right back up when I revived the store last Saturday. I’m cautiously optimistic that August will be as good, relative to LY, as July was. Today's business news said that July retail sales were disappointing overall, so once again Curio City is off in its own little world.

It might not surprise you that I re-thought a few things during my downtime.

For one thing, I’m less enthused about blitzing the lighted caps. The cheaper clip-on unit is selling much better. The two products have generated about the same number of dollars, but the clip-on’s superior markup makes it much more profitable. The wholesaler will even dropship them, reducing my inventory needs. It makes sense to promote the more expensive caps and enjoy the splash effect on the cheaper clip-ons. But I’m less inclined to put big money into advertising and inventory. Maybe I’ll try the free-sample route instead, and hope for some review ink. If I seek editorial instead of advertising, I’m probably already getting too late for Xmas. Magazines have crazy long lead-times.

I’m more focused now on overhauling my store, a process with two components.

First, the incredibly-delayed Sunshop 4.0 is finally available. Today a Turnkey representative suggested that I can avoid potential havoc by running a copy of my existing 3.5.1 store while Eric tweaks the new version. Why didn’t I think of that?! It would be most awesome to step smoothly from my current version to (ta-da!) a polished install of the new version – especially if I can include some cosmetic updates.

Second, now that I have stronger ideas about my merchandise selection, I’m more eager turn non-conforming items back into cash. That’s going to involve setting up some eBay auctions to get rid of entire categories of merchandise at fire-sale prices. I have to be careful not to panic-sell stuff that might do well in a physical store. And I need to remember that I still don’t have it figured out. The cap lights worked as I expected. The dog Frisbee didn’t, yet, although I just announced it to 450 newsletter subscribers yesterday. The rain gauge didn’t work, even on sale. The barbecue thermometer went nowhere. My new jewelry line is disappointing. I’m working toward a better focus, but I sure don’t have a formula for success yet. Despite all of this hedging, I want to liquidate entire categories – such as Travel, Pets, and most of Home Decor – that don’t fit my plans. At most, maybe 100 of my 385 active products are really on track.

I still have cold feet about opening a store next year. Financially, I still believe that it’s necessary. At the rate the web business is growing, it could be another five years before it starts paying the bills, so I need to up the ante. But personally, I just can’t muster any enthusiasm for a store. In fact, I dread it taking over my life.

In the wake of our Berkshires vacation, I’m reviving the “Exile on Main Street” scenario: Opening a low-rent store in the Berkshires. The stakes would be lower, failure is less catastrophic, and I could still keep the focus on my online business while solving the commercial space problem. I don’t know if my urge to live out there will hold up a few weeks or months from now. But let’s play with the idea again.

The southern Berkshires – Stockbridge, Lee, Lenox, Great Barrington – are the logical place to establish a new gift shop. They already have thriving commercial areas, and most of their focus is country kitsch, so Curio City would have a niche. There are two problems with this. First, I don’t want to live in that touristy moneyed area; I like Williamstown. Commuting down Route 7 each day would be unpleasant and impractical, thanks to Pittsfield squatting worthlessly in the middle. Second, that touristy moneyed area is high priced. The financial stakes would not have much advantage over the Boston metro area.

The Williamstown area is too sparsely populated to support a gift shop unless it’s right in the commercial district on Spring Street or Water Street. And then I’d be competing with Where Did You Get That?!. You might remember that this Williamstown gift shop was one of the early inspirations for Curio City. WDYGT has changed a lot since then – they’re much more child-oriented and mass market than they were in their old location – so I don’t think we’d be direct competitors. But I doubt that Williamstown can support two novelty-type gift shops. And being the immigrant newcomer would be a disadvantage in insular New England.

This brings me back to North Adams again. It fits my strategy and is close to Williamstown. But could I really cope with working every day in a depressed, decaying, low class community? It dilutes the attraction of the Berkshires. Why go through all of the relocation upheaval just to end up in North Adams?

I suppose there are other options, like Lanesborough. Superficially, it’s just a commercial strip on Route 7, but maybe it has more going for it than meets the eye. Most likely, this discussion will peter into silence as our vacation recedes in memory. “Exile On Main Street” is still my least likely future.

BTW: I’ve decided to make my blog labels more descriptive, so some of the generalizations are giving way to specifics (e.g., "planning" becomes "moving elsewhere" and "opening a store"). I am not, however, going to recategorize every old post. Navigation might get less useful before it improves.

Possible Future 5: Exile on Main Street

I’ve saved the hardest of this series for last. It is simultaneously the most logical thing to do, and the least likely to happen.

High Boston-area rents are the main deterrent to moving Curio City out of the house. Whichever future I choose in 2008 must produce a huge leap in sales – at least quadrupling my 2007 plan – in order to cover even a modest rent expense...not to mention a monthly debt payment. What I consider decent gross monthly sales right now would not even cover rent alone. As long as I live in this metro area, I have to concentrate on making huge sales gains – in the medium run, a full order of magnitude more than I’m doing now -- because it’s impossible to cut costs any further.

Future 5 would break that requirement by moving Curio City to a low-rent environment. Right now, CC is portable. A web-based business can run equally well from Boston’s Back Bay or the slums of East Boondock, as long as convenient and reliable shipping/receiving services exist. Only personal ties keep me in the Boston area.

Every summer, Anne and I vacation in the beautiful, sophisticated, liberal arts college town of Williamstown, Mass. In fact, one of Curio City’s original inspirations was a store in Williamstown called Where Did You Get That?!? Someday in the next few years, the Fates willing, we will buy a summer home near Williamstown.

A few short miles from Williamstown lies the depressed mill town of North Adams. The Mass. Museum of Contemporary Art keeps a pulse going in North Adams, but that’s far from being a revival. North Adams is a perpetually depressed town populated by lowbrows and lowlifes.

Laughably cheap rents and real estate are a corollary of North Adams’ condition. A small retail space in their attractive but forlorn little shopping district can be had for a few hundred dollars a month. (equivalent space in South Braintree Square goes for $3,000+) In Future 2 (“Curio Metropolis Online”), Curio City just needs a basic office with good shipping and receiving facilities. Any over-the-counter retail sales only help offset the major expenses of rent, telephone, internet, insurance, utilities, etc. In high-rent Braintree, OTC sales rapidly grow in importance to the point that Future 2 inevitably compels Future 1 instead (“Curio City Offline”). And, as I type this, I realize that I prefer Future 2 to Future 1.

A sales counter located on Main Street in North Adams would be under very little financial pressure to perform. A dozen OTC sales per week would almost surely produce enough revenue to cover the whole operation’s small rent. A store in Braintree, in contrast, would need to turn about 100 transactions each week just to cover its own expenses. That’s really quite a lot.

Objectively speaking…if OTC sales are beside the point, as in Future 2, then moving CC to a low-cost environment is the logical choice. We are already serious about living part of the year near Williamstown. North Adams, then, is a very logical low-cost home for Curio Metropolis Online. I could easily live in our Williamstown home and commute the few miles into North Adams every day.

The drawbacks are personal:

1. I’ve lived in Braintree for 20 years. I have friends here. There’s a lot to like about the town. Although I don't go into the city often, I'm accustomed to having Boston nearby. I am rooted. I don’t want to move away entirely.
2. I lived in a low-rent backwater (Elmira, N.Y.) once before for several years. It was boring and depressing – possibly the low point of my adult life. In too many ways, North Adams reminds me of Elmira. And even Williamstown is probably too small and isolated to satisfy me year-round. It could easily become stifling in the winter.
3. I’m married. She could move out west with me, but she doesn’t want to any more than I do. Neither of us wants to have a commuter marriage again, so I’m not going to move without her (besides, I’ve grown accustomed to her).
4. Our Williamstown house is supposed to be a summer getaway that we can rent out when we’re not there, and that Anne can use as a base for her classes and seminars. It loses those qualities if I’m living out there permanently.
5. Wherever CC ends up, I’ll be tied to it full time – even more so than I am already. With no employees, I don’t get any days off. I could theoretically make it nomadic and truck my merchandise from Braintree to Williamstown and back again once a year, if we were really living out there for months at a time. But that would be a difficult and expensive logistic to perform every year…particularly as my business, and my inventory, keep growing.
6. North Adams is even more seasonal than most of the Berkshires. AFAIK, its paltry summer tourist trade depends entirely on MassMoCA, and disappears the rest of the year. Even my extremely modest OTC sales expectations might not pan out. There’s got to be a good reason that most of their storefronts are deserted. I can easily imagine going days between customers during the winter.

If I were 25 years old again, I might consider this an adventure. But I’ll be 50 in a couple of months. I don’t want to uproot. I’ve lived here for over 20 years, which is longer than I ever lived anywhere else. This is my home. Despite all the sense that it makes, I don’t think Curio City will undergo an exile on Main Street.

Forthcoming Topics:

• Startup Phases Reconsidered
• Credit Card Processing
• PPC Advertising Update