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Tuesday, April 26, 2005
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The New Music Entrepreneur
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Editor's note: From time to time we like to bring you guest columns on important subjects or industries. So we are very pleased to provide this two-part guest column by music futurist Gerd Leonhard. In this Part Two, he tells us how the music industry is changing, creating new opportunities for entrepreneurs... and how musicians are becoming entrepreneurs.
By Gerd Leonhard
Music products become music services, access replaces ownership, the customer finally rules, and... we can do most of it ourselves!
The music industry is in a very exciting transition phase. Seven years after the first digital music "revolution" and the painful burst of the dotcom bubble, the so-called "Creatives" (aka musicians, producers, writers, composers...) are finally starting to see a glimpse of what may be in store for them: more control over their own destiny, less hassle, direct access to their markets and... more cash!
Digital technologies have become an unobtrusive and omnipresent part of our lives. The way that the entertainment, media and content industries must conduct their business has therefore changed forever. This digital tide cannot be reversed. Digital technologies have simply become part of our lifestyle, and one that empowers music producers to "go Do It Yourself" (DIY) -- rather than sign their rights away for admission to the music distribution food-chain.
Clearly, the DIY trend in the music business will lead to exponential growth in the small-to-medium size service industries (SMEs). Specialized skills and knowledge will be highly valuable. Even major artists are starting to take charge of their own business affairs and want to coordinate their own marketing and business development activities. No longer are they willing to sign all rights away to a large music company and live (or rather, die) at their mercy for the next 7 years.
Now is the time to start marketing services companies, technology consultancies, branding agencies and full-service companies.
However, there is one exception: studios. Small studios will have a very difficult time competing in the market place. The perception is that now anyone can build a small home-studio for less than $5000 and do all their own productions from A-Z. Anyone that has ever been to a good studio, with a good producer and a good engineer, knows that this is not the case. Small studios must know find other ways to add value, e.g. by offering mastering services, web services or simply helping DIY producers do it on their own.
This also portends changes in music schools and educational institutions, which now need to teach "the business" of music and DIY. There is no doubt that 100s of 1000s of talented musicians, composers and writers have fallen prey to the idea of "being good = good enough"; i.e., that by being a great musician they will somehow manage to make a good living.
Well, anyone that has been there will tell you that this is a fool's paradise. Being a musician is being an entrepreneur. Period.
Skills for successful entrepreneurship can be learned and trained. Many music schools such as my own alma mater, Boston's Berklee College of Music, already offer this kind of training -- now, even online (see www.berkleemusic.com).
Entrepreneurship turns out to be an essential skill for today's musicians -- and even more so for the musician of tomorrow.
* * * * * * * * * *
In addition to being a futurist, Gerd Leonhard is a musician, entrepreneur, and the co-author of The Future of Music.
Be sure to check out Part One of this series (scroll down or click here).
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By Anita Campbell | Permalink |
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Trend: The Record Industry as We Know it is Dying
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Editor's note: From time to time we like to bring you guest columns on important subjects or industries. So we are very pleased to provide this two-part guest column by music futurist Gerd Leonhard. In this Part One, he describes the key trends of the music industry -- and their impact on independent musicians and small businesses in the music industry.
By Gerd Leonhard
The music industry is undergoing massive changes, and the next five-year horizon will open new doors for enterprising musicians and businesses servicing musicians. Here are some of the key directions I see:
Get "digital attention"
Tomorrow's music companies must figure out how they will get their tracks into any and all of the digital channels, and just how exactly they will get the user to pay attention to THEIR artists rather than the latest videogame or cell phone. So -- the question is no longer IF you need to make your music available, nor how much a track should cost, but just HOW the world's consumers will find them, and how artists and their modern-day representatives can get the attention of that perfectly-matched customer.
Exposure and discovery always leads to revenues
Exposure and discovery are the main milestones on the digital highway of the future. If an artist can get exposure, then 90% of the battle is won.
Music like water
Until just recently, it was virtually impossible to get a quick and affordable deal for a license to use a song for a flash video on your homepage. Now there are a myriad of companies offering that service, among them the latest professional offering by Apple. When the gates are finally wide open, music will become truly ubiquitous, and revenues will start to flow from previously little-known sources. Music will be everywhere.
Access will replace ownership
In three to five years, consumers will have access to "their" music anytime, anywhere and the physical possession of it will in fact be more of a handicap, or a pastime for collectors. Music will feel (and act) like water, and music providers will become utilities.
Mobile multi-access
Multi-access to music will be the default setting, allowing consumers to "fill up" their music devices at gas stations, train stations and in coffee shops, using wireless as well as fixed-media applications. Mobile phones as we know them today will be replaced by much more powerful "mobile communication and entertainment solutions" that network seamlessly. Flat-fee access deals, cheap international roaming and "content & connectivity" bundles will make mobile music offers virtually irresistible.
Use technology to re-ignite your music business
Technology has always driven the music business, and it will drive it this time too. Think back to the birth of amplification, the advent of radio, the invention of the player-piano, the gramophone, the Walkman, the CD....
Put your entire catalogues and all related information online (no, that does not mean giving it all away for free!), both for internal and for external purposes. In the future, "content" assets will only be truly meaningful if they are available as 1s and 0s.
Look for "feels like free" distribution models that get some exposure for your content, because exposure will inevitably bring you revenues. Pursue some secure means of delivery (such as for industry-internal purposes), but in general focus on viral dissemination and on reaching the highest possible rate of exposure. Liquidity is the name of the game!
Transparency wins
Do all your business online. Start by using online contract and royalty administration tools, integrate online payment systems for licensees and licensors, create online interfaces for your business partners, offer deep information archives for media and marketing purposes, and put online syndication tools to good use.
Transparency is the name of the game, today and in the future. The more transparent your business activities will be, the more loyal your customers and business partners will be.
Lower the prices and unplug the pirates
Drastically lower the prices for music products and you will see piracy disappear quickly because it cannot compete any longer.
Let's look at new ways to release music. Why is it that every new product must be released on CD, and join the other 3,500 new releases per month in the battle of shelf space and media attention?
How about reviving the singles format, but in a digital form (releasing new singles on the web, as well as on bundled media products), packaging new tracks into games, phone subscriptions and ad campaigns.... Abort the old way of thinking "product" -- think SERVICE.
Up-sell, cross-sell and re-sell
Let's unchain the music we already have. This means a solid "yes" to free music services, feels-like-free online radio and even free media products -- make it free if it has to be, and charge for it when, where and how you can. The new game here is UP-SELL (i.e. sell more and more stuff to your ever-loyal customers) CROSS-SELL (i.e. sell more stuff to someone else's loyal customers that were referred to you), and RE-SELL (i.e. sell the same stuff in a different package or bundle) -- already common practice in the software world.
Niches are golden
Look at the high-yield niche markets that are now, finally, reachable, using digital technologies. Promote and pursue diversity, not one-artist-fits-all. Take the emphasis off the good old "three artists selling 15 Million tracks each" model, and look at the idea of 100 artists selling 250,000 tracks each.
The future of music is rooted in giving the consumer what (s)he wants, in utter transparency and sincere collaboration, and with a deep understanding of the need to provide services that are user-friendly and accessible everywhere.
* * * * * * * * * *
Like this article? Be sure to read Part Two of this series (click here).
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By Anita Campbell | Permalink |
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Monday, April 25, 2005
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Small Business Week -- and A Special Offer
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This week, April 25-30, 2005, is Small Business Week in the United States. We have special things in store all this week.
First let me start with a special offer for Small Business Trends readers.
As many of you know, one of our sponsors is BusinessTVChannel.com. I consider BusinessTVChannel.com to be something of a cross between television and the Internet. It is a site that provides video broadcasts for time-starved business people, over the Internet.
If you sign up this week, before April 30, you can get the first month for $1 (regular price $19.95). AND -- you will get your choice of one of four special packages of pay-per-view content and books -- for free! To view all the details, go over to our sister site, TrendTracker, where I've posted the offer.
My thanks go out to Ruth King, CEO of BusinessTVChannel.com, for making this special offer available to you. She is a true pioneer in online broadcasting. Be sure to check out her new blog, also: Small Biz Sense.
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By Anita Campbell | Permalink |
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Sunday, April 24, 2005
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PowerBlog Review: Brindi's Bargains
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Editor's note: I am delighted to present another in our weekly PowerBlog Reviews of business weblogs. This is the sixty-second in the series.
This is a first for the PowerBlog Reviews: we are reviewing a blog by a dog.
Brindi's Bargains has a tag line saying "Our dog sniffs out the best deals on the net." There is even a picture of Brindi, the dog.
Brindi's Bargains is an affiliate marketing site. For those who don't know, "affiliate marketing" is when one website sells products of another website, and earns a sum of money for leads, sales, etc.
Essentially the site operates as a place to collect affiliate specials and coupons. The blog format makes it easy to follow the offers.
Brindi the dog operates as a sort of alter-ego. Brindi's owners are Kenn and Erica Kerper of Toledo, Ohio, USA. Kenn tells me that it was a little hard at first teaching Brindi how to blog: "She was quite reluctant to do anything with a computer at first. You can't teach an old dog new tricks. But after she dug her paws into it, it was like she'd been doing it her whole life."
In addition to having fun with the blog, the Kerpers use it to generate revenue. Kenn is a full-time MBA student. The site is his entire income right now. He says he's made more than he expected. He says about affiliate programs in general:"Most online retailers want to make it as easy as possible for their affiliates to promote their sites, so they are usually very good about emailing them coupons and promotions an a regular basis. That is where I get A LOT of content for my blog from, directly from the affiliate emails. I'll usually wake up and find between 20 and 40 affiliate emails. If anything looks good, I blog it." One of the useful features of this site is the long blogroll linking -- not to blogs -- but to affiliate sellers' sites. The list is huge. Best of all, it is divided into categories.
If you are looking for traditional blog reading, then Brindi's Bargains is not it. You won't find any lengthy posts examining issues from all sides. Nor will you find personal observations, news items, rants, or other typical blog writing.
But we thought affiliate marketing was a creative and unusual use for a blog, and for that reason worth profiling.
Kenn is very objective about the pros and cons of the blog format. He points out one of the major advantages, which is that he has spent zero for the blog site. So his affiliate sales are all profit.
On the other hand, he is also running up against one of the glaring limitations of the blog format: poor searching capabilities for large amounts of data. As he says: "A blog with an RSS feed drives more traffic to my website than anything else. The convenience that RSS offers my readers is unparalleled. But I have been bothered for some time with what I can do for my readers once they are at my site. Certainly a long list of retailers that require a reader to scroll so far down a page in order to find what he or she wants is not the answer. So I'm working on a model in which the blog will be the main feature, but it will be supported by an active database of coupons, deals, and products on sale." The Power: The Power of Brindi's Bargains is how it pushes the envelope for ways that a blog can be used. It's a creative use of the blog format. In the process of pushing the envelope, it points out one of the greatest benefits (low cost) and one of the most glaring deficiencies (not scalable for searching when data volumes grow).
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By Anita Campbell | Permalink |
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Saturday, April 23, 2005
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High Energy Prices Pressure Small Businesses
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Most small businesses operate on a thin margin of profit. Even relatively small increases in their operating costs can make the difference between profitability and a loss. Many small businesses have considerable local competition and often don't feel they can raise prices.
That's why high gas prices are such a big issue right now with small businesses in the United States. With gas prices averaging $2.30 per gallon, businesses with fleets and delivery vehicles are under pressure, as this article in the Daily Democrat notes:"Rising gas prices are hitting small business people hard, especially taxi drivers, companies with small fleets, fast food delivery drivers and others, said Jack Kyser, chief economist with the Los Angeles County Economic Development Corp. Kyser said he has heard of at least one florist who has restricted its delivery area because of fuel costs." It's not just small businesses -- independent contractors also feel the pinch:Luis Martinez, for example, is paid 75 cents for every Domino's pizza delivery he makes in the San Fernando Valley, on top of his hourly minimum wage. And the delivery compensation hasn't changed, he said, which is a problem because of the hills his 1995 Toyota Tercel must climb -- and the gas that uses up -- to make some deliveries. And if that weren't enough, there is also the problem of high natural gas prices, which puts special pressure on restaurants: Jo Binanti was searching for a job Wednesday before heading to her job operating Binanti's Italian Restaurant with her husband, Salvatore.
The reason was simple: She needs a second job during the day to afford the natural gas costs needed to keep the couple's 10-year-old restaurant at 2411 Main St. in Caledonia open at night.
"I don't know how small-business owners are going to make it. How can you make it?" she said. "We are going to have to get jobs. There is no other way."
The Binantis are facing monthly natural gas bills as high as $1,600 in the winter and $900 in the summer to heat their business and power ovens that cook pizzas and other Italian entrees. Their 3,000-square-foot restaurant seats 100 customers. The NFIB has been following the issue and is looking for feedback from small businesses feeling the pinch of higher energy costs.
The subject is so important to small businesses that President Bush plans to talk about energy at Small Business Expo this week.
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By Anita Campbell | Permalink |
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Friday, April 22, 2005
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Blogs as Marketing Tools Best Suited for Small Businesses
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Priya Ganapati writes in Inc.com that business blogs are growing as a business marketing tool, in particular among small businesses.
I'm quoted in the article (along with blogging buddy Paul Chaney of Radiant Marketing) as pointing out that blogs are tailor made for small businesses.
I believe that the blog as an external marketing vehicle is well suited for smaller businesses, more so than for large corporations.
Certainly we see a few corporations where large numbers of employees are blogging. However, it takes a special corporation to have enough trust in its employees to let them blog publicly. Robert Scoble and the minions at Microsoft come to mind. Most corporations simply aren't as open as Microsoft.
And what about CEOs and other executive management? Again, I don't think so.
The idea of a C-level executive (CEO, CFO, etc.) of a Fortune 500 company speaking directly to the public in his or her own voice through a blog may sound attractive. In practice it is devilishly hard to pull off.
Large corporations have too many constituencies they have to worry about offending. The highest level executives are in a virtual straight-jacket when it comes to what they can say publicly. Legal concerns limit their public statements -- in the United States think SEC regulations, for instance.
Not to mention that it takes commitment to sustain a blog for more than a few months. Blogging takes time. Corporate executives sometimes have two or three administrative assistants to manage their schedules. How will they find enough "free time" to blog consistently?
More importantly, if you are a shareholder, do you really want to pay your executive managers millions of dollars annually to blog? Instead of focusing on crucial issues such as profitability and growth? As a shareholder, I know my answer.
Small businesses, on the other hand, have more freedom to speak directly to their audience. Their target markets are usually narrower. They don't have millions of shareholders. Therefore, they can speak plainly with less risk of offending someone. Nor do small businesses have to worry about coming up on the receiving end of an Elliott Spitzer subpoena.
Small business owners may not have more time than Fortune 500 CEOs, but they usually need the marketing push from a blog enough that they will make the time. And when they do, the return on investment to their small business is much greater than the return to, say, General Motors when the Vice Chairman starts blogging. Just look at the recent GM earnings release -- they've got bigger problems than a public blog can solve.
Does this mean that blogs are not important to large corporations? No! Internal (non-public) blogs certainly have an important place in the large corporation. And I believe non-executive employees can blog effectively on their operational slices of the world. But that means a loss of control. How many corporations will feel comfortable about large numbers of their employees blogging publicly is the issue.
When it comes to public-facing blogs -- for marketing purposes -- large corporations are better off being talked about positively in third-party blogs than by having their own blogs. The smart corporations monitor other blogs closely. They learn from and respond to what is being said.
With smaller businesses, it's the other way around. The likelihood of being talked about in other blogs is much lower. Small businesses get greater marketing leverage from starting and promoting their own blogs.
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By Anita Campbell | Permalink |
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Tuesday, April 19, 2005
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Local Search Targets the Small Business Market
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Yahoo is offering free websites to small businesses. At least, that's what the announcement says.
However, what Yahoo offers for free is more akin to a multi-page "listing" in the Yahoo Local section. You also can upgrade and get a template-based site for a monthly fee.
Of course, free sites that hang off a main website somewhere, and even low-cost sites that are based on templates, are nothing new. They've been around since the Internet went mainstream in the 1990's. Most small businesses quickly realize they need something more than a listing or a cookie-cutter approach.
What the Yahoo announcement really says is two things:(1) Local search is the future. Its importance can't be overstated. Local search is getting an increasing share of attention, not only from Yahoo, but from Google, which just last week announced that it was implementing keyhole map search into its local search, and that it is making local search available to mobile phones.
(2) Everyone wants to get at the small business market. Even though it already offers a Small Business section, Yahoo still looks for new ways to get the attention of small businesses. Whether the free listings in its Local section catch on remains to be seen. For more, read this article in InformationWeek (try our free magazines: subscribe and get the hardcopy version free!). The article has some excellent insights into the strategies of big search players about local search and how it plays into the small business market. It cites an interesting statistic that 70% of U.S. households use the Internet to shop locally for products and services.
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By Anita Campbell | Permalink |
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Monday, April 18, 2005
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Harley, Short Sellers and Franchisees
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Editor's note: It's time again for another article by expert guest blogger, John Wyckoff. This month he looks at the sudden drop in the price of Harley Davidson stock, and what it means and doesn't mean for Harley's many dealers, virtually all of which are small businesses.
By John Wyckoff
Earlier this month, Harley-Davidson stock (HDI) plummeted from a year's high of $63.75 to a low on April 15th, of $45.80. What happened? Harley told Wall Street and their stockholders that they were going to reduce the number of motorcycles they plan to manufacture for the remainder of 2005. Adding to that they also said they would make less profit for the remaining quarters of 2005.
Let's put things into perspective. The Dow Jones Industrial Average dropped from 10,500 a year ago to 10,088 on the 15th of April. At the same time the price of gasoline continues to rise at what can only be called an alarming rate.
Now, lets look at the rest of the auto, truck and motorcycle industry. The major American, German and Japanese auto and motorcycle manufacturers have resorted to substantial discounts and other incentives to bolster lagging sales.
Naysayers and short sellers were delighted with the drop in Harley-Davidson's stock value. After all, they've been predicting a drop in the company's stock for more than a decade. Finally, it happened.
Why? The supply and demand of Harley-Davidson motorcycles is closer to becoming in balance. For many years now the demand for bikes has been greater than supply. No matter how many bikes the factory produced each year, dealers and consumers wanted even more.
The disparity created a phenomenon new to the motorcycle industry. It's called "market pricing." Harley-Davidson was always against market pricing. To define that term, market pricing is a price well above the MSRP (Manufacturer's Suggested Retail Price). In some cases dealers in high demand areas were asking as much as a $5,000 premium on a $19,000 motorcycle. Others asked for about half that but also insisted the buyer purchase several thousand dollars worth of accessories and apparel. Despite the demanded premium, sales continued to outstrip supply.
Harley-Davidson's management continued to urge their dealers to sell the bikes at MSRP. They were concerned they could lose customers to other brands, most of which were selling for considerably less than MSRP. They were also concerned that the brand was in danger of becoming an elitist's toy. New Harleys were selling for as much as, or more than, many new cars.
By the way, during the same time Harley was announcing the reduction in production for the remainder of this year they have not backed off their unit growth projections of 7 to 9 percent annually. That fact seems to have eluded Wall Street.
So what's the reality of all this? Many market price dealers will now revert to MSRP. That alone should boost sales by making Harley-Davidson motorcycles more reasonably priced for those who resent market price sales tactics or those who simply could not afford or would not buy a bike for more than MSRP.
In the meantime Harley, will continue to have fewer bikes available than the market demand. It's been the company's philosophy, according to the previous Chairman of the Board, Rich Teerlink, to keep Harley's "one short." Rich was keenly aware of the perceived value of Harley-Davidson motorcycles. He was also aware that other companies have found over-production causes a disorderly marketplace. When supply exceeds demand prices fall, not only for new units -- the value of used units suffers even more.
It's a delicate balancing act -- on the one hand keeping quality and quantity in check and on the other satisfying the consumer. Harley's management are keenly aware of this and are willing to do whatever it takes to keep their products in high demand while assuring the financial success of their dealers.
I'm not a stock analyst, nor do I have a vested interest in Harley-Davidson. I do recall when the company stock first went public it sold for $11.00 a share. Shortly after that it slipped to $7.00. Since then the stock has risen to about $50.00 to $60.00 then split two-for-one four times. Those who've stuck with the company have prospered greatly.
Of the more than 600 Harley-Davidson dealers in the United States I suspect that the vast majority who've been in business since the "old" days have become wealthy beyond their wildest dreams. Imagine starting out with perhaps a $100,000 investment 20 years ago and now operating a retail store doing more than ten-million dollars in sales per year with a 20% gross margin of profit.
Is Harley-Davidson stock a good investment? I don't know but I do know that if Harley is able to produce 400,000 units by 2007 and keeps adding new, young and aggressive dealerships, chances are their stock will climb past its 2005 high.
I do not see this as a trend impacting the dealers greatly. For any small (under one-hundred million dollars in sales) retail business it's important to stay focused on the customer. The machinations of the stock market, the buying and selling and merging of corporations, should not have the small business owner bouncing off the walls wondering whether to bail out or if the franchise is becoming worthless.
All business is local. If the product is in demand the company that makes it will find a way to continue supplying it. Customer loyalty is related more to the local retailer and the personnel than to the brands of products offered.
UPDATE May 4, 2005: Harley repurchased 20-million shares of their stock on May 2nd. They also increased their dividend. Zimmer is now the new CEO. Their stock is up from $45 to $48. I expect it to go up substantially by Sturgis time (big Harley Davidson rally in August in South Dakota). I expect to see the stock climb to $55. There are not many stocks that can boast such gains. We'll see if I'm right.
Like this article? Read more by John Wyckoff:
Chinese Competition's Impact on the U.S.
Powersports Industry Trends for 2005
And be sure to check out his new book, Mind Your Own Business, 2nd Edition.
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By Anita Campbell | Permalink |
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Sunday, April 17, 2005
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PowerBlog Review: Coyote Blog
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Editor's note: I am delighted to present another in our weekly PowerBlog Reviews of business weblogs. This is the sixty-first in the series.
Today we are reviewing the Coyote Blog. The Coyote Blog's tagline is "Dispatches from a Small Business." The blog is written by Warren Meyer, a small business owner in Phoenix, Arizona, USA. Warren is in the business of running recreation facilities (campgrounds and marinas) on government lands.
No, this blog is not about animals (even though a picture of a coyote appears on the blog). It's called "Coyote Blog" in honor of the state of Arizona, and as a reference to the cartoon character Wilie E. Coyote and that small business the cartoon made famous: Acme.
One of the beauties of a blog is that it lets the author give free reign to his interests. This blog very much reflects its author's interests, and Warren has a wide range of interests.
He says he got started blogging after buying his own business, when: "...lots of people asked me to help them with buying a business of their own, and for help with small business issues, so I started the blog mainly to communicate some of my lessons learned. However, since I have the attention span of an 8-year old boy mainlining Hershey bars, my focus widened to politics and economics and sometimes sports and occasionally gadgets. In these areas, I blog for sanity. In college, I burned to change the world, and to argue with everyone who disagreed with me. And, given the political climate at universities, being a proponent of free markets gave me plenty of opportunities to argue. Now that I am older, arguing politics with everyone in sight is annoying, not to mention over-taxing. The blog has been about right, allowing me to vent my spleen from time to time without irritating my friends and family." Despite the free-ranging nature of some of the topics, you'll find substantial business content. Warren strives to do one substantial post a day where he says something meaningful with value-add, as opposed to short posts simply pointing to other content elsewhere. He reports that his link rate from other sites went way up when he started the "substantive post" style of blogging.
Often business content on the Coyote Blog is presented in a larger societal, economic or even political context, giving it richer meaning. After all, it's hard to separate a business's financial health from taxes, burdensome governmental regulations, and similar conditions around it.
One very insightful series of posts I highly recommend is about buying a small business. It's an excellent 3-part series with real-life experiences and can be found starting here. Now, in a typical publication, when you read an article about buying a business, you get general information -- probably a broad overview. What Warren gives you is the kind of information no one ever tells you. Indeed, that's a hallmark of blogs generally -- getting information about people's experiences that is often hard to find anywhere else.
Warren is an avowed libertarian. I asked him to please shed some light on why it seems that every libertarian on the planet has a blog. Warren gives us the answer to this big mystery: "...libertarians have never had a really good outlet for our opinions and it is a relief to have a channel to be able to express our views without distortion. ***One of the problems with communicating or branding libertarianism is that it is almost by definition an umbrella that covers a whole wide variety of stuff. Libertarians revel in differences and being different. Almost by definition, none of us have the same message, or even believe that we all should have the same message. Blogging is tailor made for us -- many diverse messages rather than one official one." The Power: The Power of the Coyote Blog is the straight-shooting way its author comes right out and says what he means, without dancing around subjects. And the real-life business experiences he conveys are eminently helpful, providing information it is hard to get elsewhere.
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By Anita Campbell | Permalink |
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Wednesday, April 13, 2005
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SBIC Program: Stop the Bleeding
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Today's Wall Street Journal editorial page has an excellent piece on the use of taxpayer money to fund risky start-ups in the United States. The point of the piece is that Congress would be wise to stop using taxpayer money to fund start-up companies.
Since the Wall Street Journal is a subscription-only publication, I provide this extended excerpt:"Venture capital is risky business in the hands of professionals. When done by the federal government it tends toward the disastrous, as the Small Business Administration is now admitting about its decade-long attempt to outsmart Warren Buffett.
The SBA launched its Participating Securities program in the early 1990s on the dubious premise that there wasn't enough venture capital for small start-ups. The program guarantees loans to venture-capital funds, and it has backed a few winners. But it has also backed more than a few dogs, such as the $60 million Zero State Capital VI fund, which invested in "new and emerging technology firms," though apparently not "emerging" enough. The fund is expected to go into receivership in May, and the Boston Business Journal recently reported that company executives now admit the fund, which was launched in 1999, was an "unmitigated disaster." No kidding.
After 10 years the entire Participating Securities program has estimated losses of $2.7 billion, SBA head Hector Barreto told Congress last month. Of that, "$I.7 billion ... are realized cash losses," he said. Actually, it's worse: We're still years away from knowing the program's ultimate burden on taxpayers because venture-capital funds are given 10 years to repay the money. The government's total exposure as of last September 30 was $11.25 billion.
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The good news is that the SBA's Associate Administrator for Investment, Jaime Guzman-Fournier, is expected to recommend that the program be killed when he appears today before the House Small Business Committee. But no bad idea ever dies an easy death in Congress. And at today's hearing, Chairman Don Manzullo (R., Illinois) is expected to promote "reform" instead of mercy killing.
***
Republicans of all people should know better than to tax some Americans more so that the government can invest in businesses that couldn't raise enough private capital. Congress can't even balance the budget, much less pick a winning telecom or biotech stock. This one isn't even a close call." I agree with the Journal and have written before calling for Congress to get out of venture investing. Indeed you need only glance at this Inspector General report to understand why.
Not that I'm against start-ups or small business -- of course not. But there is a right way to fund most start-ups and a wrong way. Most start-ups need to first fund themselves through bootstrapping, i.e., using their own money and money they bring in from customer sales. That way they prove the viability of their business. Later, when they get their legs, loans can help them expand.
Venture capital is for the tiny tiny tiny percentage of companies with high growth business models. Venture funding is necessary for this small group of start-ups. The investment costs to launch or grow a high-tech business can be huge. But let professional investors take the risk of funding this small minority of venture-eligible companies, not taxpayers.
In the heady days of the 1990s, a different attitude toward investing prevailed. The winds of venture investing are more conservative now. With the benefit of post-Dot-Com-bust hindsight, we should now be capable of putting venture funding into better perspective and realize how risky it is.
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By Anita Campbell | Permalink |
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Sunday, April 10, 2005
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PowerBlog Review: A-ha!
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Editor's note: Welcome to the sixtieth in our weekly series of PowerBlog Reviews of business weblogs.
This week I am reviewing a blog started by a friend of mine, Yvonne DiVita, and her fiance Tom Collins, along with Yvonne's sister Maryanne. Together the three of them run a business called WME Books.
A-ha! stands for "authors helping authors." This is a blog written by authors, focused on helping new writers, and existing writers, in their writing and publishing efforts.
It's a whole new world today when it comes to publishing books. More authors are self-publishing. And print-on-demand services enable books to be printed without a huge up-front investment.
WME Books is on the forefront of this new publishing trend. And the blog is helping to spread the word about how publishing is changing, and what that means for aspiring authors. As Yvonne says: "We hope to show the value of self-publishing using print-on-demand -- without criticizing traditional publishing -- merely pointing out the differences, both pluses and minues on each side. With A-ha! we will be building a platform of useful information on publishing in a new age...including posts on how to overcome writer's block, why it's a good idea to HIRE an editor and proofreader (and not try to do these critical tasks yourself), posts about the importance of a good cover, and also why a writer might use an author's services company. Of course, we will discuss print-on-demand and how it will continue to grow...and perhaps, overtake traditional publishing." I got to know Yvonne, and through her Tom and Maryanne, through blogging. Blogs, of course, are great professional networking tools. About 6 months later I began editing a friend's book and helping him get it published. It was a natural step to contact Yvonne for help and I engaged the services of WME Books. So when people ask if anyone has gotten new business through business blogs, I can assure you -- it happens.
The A-ha! blog is written from Rochester, New York, USA.
The Power: The Power of A-ha! is in leveraging the blog format to help spread the word about self-publishing and print on demand services.
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By Anita Campbell | Permalink |
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Saturday, April 09, 2005
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Catching on to Health Savings Accounts
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Recently I had the chance to speak with Alex Bellinger of the SmallBizBlog.
Alex podcasted our conversation. That simply means that Alex recorded the conversation and turned it into an MP3 format that can be downloaded to an iPod or a computer. Alex is a terrific interviewer who did a nice job.
I spoke about affordable healthcare, the number one issue for small businesses in the United States.
A friend heard the podcast and said jokingly I sounded like a socialist! Heaven forbid! I believe in free markets, not socialism. I suggested in the podcast that we need government intervention in the U.S. when it comes to healthcare. However, I wasn't clear on what kind of intervention.
Let me clarify. I think this statement of health care is a good start on the type of legislative intervention needed in the United States. Small businesses will benefit from market-oriented legislation...legislation that lifts existing restrictions that are driving up costs...legislation that:- Eliminates mandated coverages that only add to our health insurance costs (can we all really afford Rolls Royce health insurance coverage, or is Chevy coverage more realistic?)
- Removes state regulations that serve to restrict free-market competition for insurers and the options that small businesses have for affordable coverage.
In other words, we need legislation that enables more choice, not less choice.
Congress and President Bush's passage of the bill creating Health Savings Accounts (HSAs) is a positive move in that direction.
Having set up an HSA in the Small Business Trends household not long ago, we are sold on their benefits. Why? Because the HSA lets us choose how we wish to spend our healthcare monies.
HSAs may not be right for those with chronic illnesses who are heavy consumers of health services. But for two adults in good health (knock on wood), HSAs put us back in control. We are not paying for coverage we don't need, want or use. If we choose our health expenditures wisely and do not use all of the money set aside in the HSA, that money can be rolled over year-to-year. It will be available later for our retirement.
We'd much rather be socking away money into an account over which we have control how the money is spent, instead of paying that same money to an insurance company that may provide more benefits than we ever use.
The insurance industry has been a little slow in catching on to HSAs. Last year at this time we had trouble finding insurance agents and insurance companies that knew much about HSAs. The same goes for the banking industry and HSA bank accounts (you need both a high deductible insurance policy and a special bank account to take advantage of the HSA program). Last year at this time there were few banks whose employees even had heard of HSA accounts, let alone offered them.
All that is now changing. Choices are more available. Insurance agents and bankers are much more knowledgeable.
Programs like HSA accounts -- giving us more choice -- are an example of positive government-enacted, market-driven programs benefiting small business. I expect more small businesses to catch on to HSAs this year. The time is ripe. The benefits are significant.
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By Anita Campbell | Permalink |
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Friday, April 08, 2005
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The Trend of the Citizen Music Mogul
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Musicians are now using in-home studios and local production services to by-pass the big recording companies.
Gerry Kaufhold, an analyst with the In-Stat market research firm, reports about this fascinating development in the latest In-Stat newsletter, noting: Dave Kusak, Vice President, Berklee College of Music, and Gerd Leonhard, "music futurist," have published a book titled "The Future of Music: Manifesto for the Digital Music Revolution." Kusak provided some mind-blowing statistics. Of 30 thousand Compact Disc "titles" that were released in 2004, only 400 "titles" sold more than 100 thousand units, and 25 thousand "titles" sold fewer than 1,000 CDs. The big recording companies lose money 98.7% of the time! Because of this frightful "business model," the few remaining mega-music companies are driven totally by the need to create monster hits, and a lot of otherwise good music never gets a chance in the marketplace. Because of this development, independent musicians, singers and songwriters are taking control of the production and marketing processes themselves. They are finding that if they control costs, they can actually make more money doing it themselves than by being discovered by a big music company.
The Artist Formerly Known as Prince (or maybe he is once again known as Prince -- I'm not sure) found that to be true. His best-selling album "Purple Rain" sold more than 13 million copies, yet he made more money on his most recent project using a direct-to-market approach.
Advances in technology and the Internet are playing a huge role in this trend.
Now it is actually cheap to produce a professional-quality video. For instance, a friend of mine works for a digital media company. They rent out video and audio studios at very reasonable prices. Recently a local hip-hop group hired the studio for an hour, complete with a cameraman. The cost? A grand total of $450. That's all it took to professionally record a music video.
And, to those who know how to leverage it, the Internet can be an extremely low-cost marketing media. Over at Go Daddy you can host a website for as little as $3.95 a month. Too expensive? You can set up and host a blog for free. It doesn't get much cheaper than that.
This is the same kind of pattern as in the publishing industry. Aside from a few mega-writers, most authors make next to nothing from books published through the big publishing houses. Consequently, more authors are self-publishing.
You've heard about the citizen journalist, a term used to describe those people blogging. I've also spoken about the citizen broadcaster, to describe all the people (myself included) running around with microphones making recordings. And of course, all those self-published authors have spawned the citizen publisher.
And now -- introducing... the citizen music mogul.
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By Anita Campbell | Permalink |
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Wednesday, April 06, 2005
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The On-Again Off-Again Entrepreneur
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A trend I am seeing increasingly is what I dub the "on-again off-again entrepreneur."
The on-again off-again entrepreneur is someone who moves back and forth between being employed and owning his or her own business -- multiple times.
It's not an either/or question: either being an entrepreneur your whole life, or being employed your whole life. More frequently these days, people are doing both at various times, moving in and out of entrepreneurship as the exigencies of earning a living force their hands.
Jory Des Jardins, a lovely person who I met at the New Communications Forum in January, writes frequently about this phenomenon.
In a well-written piece from February, she talks about entering self-employment again for the third time. She then meets up with an old friend who has left his own startup business to return to the corporate world again. His comments give insight into why some people become on-again off-again entrepreneurs:He parked in front of my place wearing jeans and a button-down silk shirt--a dead giveaway that he was working a corporate job again.
He was almost sheepish when he came inside, explaining why he was in my neck of the woods.
"We had a training out here for my new job. Don't worry, it's only temporary."
We walked to a coffee shop and shared a cookie, like we used to. He seemed happy, if not cautious. He liked being married, he said, though he wasn't sure about the new job.
"What's wrong with it?" I said.
"Nothing, except that it's a job. A regular old job. I'm back in a cubicle, making phone calls and enduring a commute. I said I would never do that again. But I'm married now, and she's just out of grad school and not working yet." He pulled out a business card.
"What's this?"
"It's the company I'm starting on the side. If everything works out I'll be back working at home and running a business from my laptop."
"That sounds nice."
"I can't do this nine-to-five thing knowing that's it. That this is how I'm going to be living my life." This describes one type of on-again off-again entrepreneur: the entrepreneur at heart who takes a corporate job because of needing the money. But he doesn't like it...not one bit. He's just biding his time until he can sustain himself in his own startup business and get back to working from a laptop at home.
It may take several tries, and several bouts of corporate employment, before he gets it right. But the on-again off-again entrepreneur will keep trying.
There are other reasons for being an on-again off-again entrepreneur. I'll talk about some of those reasons in future posts.
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By Anita Campbell | Permalink |
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Sunday, April 03, 2005
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PowerBlog Review: Genuine Gems For Pearl Girls
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Editor's note: I am delighted to present another in our weekly PowerBlog Reviews of business weblogs. This is the fifty-ninth in the series.
If you like jewelry -- even a little -- then you are going to love Genuine Gems for Pearl Girls.
I'm always amazed at the creative uses that entrepreneurs and small businesses put blogs to. And this blog is no exception.
This blog is written by Judy Isaacson. She writes it as a companion to her family's business, Maurice Goldman Fine Jewelry.
How many blogs "bedazzle" the reader? Not many, I'll bet, but this one does.
Judy says she started the blog to "...transmit the credibility and reliability of Maurice Goldman Fine & Estate Jewelry, and to bedazzle the reader with our unique, and often rare, precious jewelry." She goes on to say: "As a newcomer to the family fine jewelry and estate jewelry business, I am constantly learning about precious gems, rare estate pieces, the difference between treated and untreated gems, pearl quality and how pearl luster affects complexions, to name a few areas. I thought that the blog format would be an excellent communication tool to pass on these new insights to people looking for quality jewelry. There is so much jewelry "out there" that making a jewelry purchase based on knowledge can only benefit the consumer." The blog features pictures and descriptions of some of the jewelry for sale in the company's eBay Store or in eBay auctions. But it makes for much more interesting reading than a typical eCommerce catalog. For one thing, the blog adopts a more conversational voice. It also has more background information about gems. It even gives commentary on current jewelry styles, quoting news articles and style columns.
The end result is quite readable and enjoyable. It reads a little like a magazine article, and draws the reader in.
Of course the jewelry is fabulous. All of the pieces look one-of-a-kind, and much of it is vintage. From the $100,000 natural Burma sapphire ring to earrings under $100, the jewelry covers a wide price range.
I asked Judy if using a blog was an unusual step for the family business. Apparently not. Judy says the business was started by her grandfather in 1910 in Europe (how's that for a long-lasting family business?): "His cutting edge approach, followed by success, was to travel the fjords in Scandinavia in search of discerning customers. My father and uncle traveled to Japan and the Far East soon after the second World War and developed a clientele in the U.S. that was hungry for the exotic and rare gems that they brought back. Some of their advertisements from that time were quite avant garde (see picture).
In the age of the internet, e-mail, blogs, RSS feeds, e-stores, my "cutting edge" approach is to combine our established bricks and mortar business with an online enterprise as its extension." The blog's home is in New York, but Judy tells me she writes from Israel.
The Power: The Power of Genuine Gems for Pearl Girls is the innovative use of a blog to educate buyers and the public about gems and jewelry, and increase sales of the company's fine estate jewelry.
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By Anita Campbell | Permalink |
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Pope John Paul II on Free Markets
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As the world mourns the loss of Pope John Paul II, I am reminded to go back and read some of the writings of Father Sirico, who heads the Acton Institute.
As Father Sirico has written, Pope John Paul II was a supporter of free markets. Maybe not unbridled free markets, but he believed more closely in free markets than in communism certainly, and even than socialism.
This article from Investor's Business Daily describes a little of Pope John Paul II's viewpoint on capitalism and is worth a read.
Many thanks to Jeff Cornwall, who writes at The Entrepreneurial Mind, from whom I first became aware of the Acton Institute.
UPDATE April 4, 2005: if you'd like to read more about the harmonization of religion and business, be sure to check out my earlier piece on Father's Sirico's writings, Religion and Entrepreneurism -- Connected Trends.
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By Anita Campbell | Permalink |
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Friday, April 01, 2005
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Small Business Experts
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Running a business is always challenging. I'd be the last person to say it is easy.
But in many ways, entrepreneurs and small business owners have it good in the 21st Century. Never has so much advice and information been available, in so many forms.
In past times in history, information was incredibly hard to come by. For instance, during the Middle Ages in Europe, only the rich and powerful had access to information. It wasn't until many years after Johannes Gutenberg invented the printing press that information became more widely available.
Fast forward to today. Consider just the information available online. Now anyone with Internet access can find information on websites in text, video and audio. You can have it delivered to you in email newsletters. Through the beauty of RSS you also can access information from multiples sites conveniently in one place through a feedreader program, and at central websites such as My Yahoo and My MSN.
Our strategy here at Small Business Trends is to provide small business information in multiple formats, through multiple channels. As a reminder, here are some of the ways:- Experts page - from time to time we have experts give us their insights on trends impacting the small business market. For your convenience, we've assembled an index of all the experts' insights on a single page: The Experts.
- Audio - at our sister site, SMB TrendWire, we offer audio recordings of small business experts. We now have 12 very substantive recordings, and we continue to add them regularly. You can listen to them online. All the recent ones are also available as podcasts that you can download to your iPod.
- Newsletter - every 3 weeks we issue a newsletter that is delivered to your inbox. The newsletter compiles the most popular posts and letters to the editor. In future editions we will be adding other content, as well. Right now if you sign up for our newsletter you will receive your choice of a free gift of a PDF guide. Visit our newsletter page for details.
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By Anita Campbell | Permalink |
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More news... more trends... more insight... |
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