Politics and Economics

I guess tonight is the night that Barack Obama makes his big speech about jobs!  Pretty much more of the same, tax credits, extended unemployment benefits, infrastructure investments, and funds for states and local governments so that they do not have to lay off teachers and first responders.

No need for me to tune into the speech, because the reality is none of these prescriptions will deal with the economic issues we are currently facing.

In a recent column Jeremy Siegel notes that the S&P 500, which "...represents nearly 80% of the market listed value of U.S. stocks, and U.S. economy..." derive almost 50% of their profits from overseas.

So, simply put 80% of our economy is focused internationally because that is where the growth is and where their futures lie; the days of these business entities creating jobs in the U.S. is over.  Since we do not tax foreign profits until the money is brought to the United States and as they are expanding overseas and have no need to repatriate these profits we will continue to see a reduction in corporate tax collections.

The other day I participated in a debate at a tech venture capital blog, A VC, and of course the sentiment was that technology could solve all of our problems and that government just needs to get out of their way.

The reality is that technology does not create as many jobs as the technology that it creates replaces.  

Then I came across this article this afternoon, What 10 small business owners would tell the President, and one comment in particular stuck out;

"I used to do a lot of the baking and now my partner and I have moved to other aspects of the business. We have stepped out of the kitchen. It is nice to see the business is growing. We started in 2005. We have 20 employees, pretty much full time at this point.


We have a cobranded line of mixes with Williams-Sonoma: brownie mixes, a Bundt cake coming out, and a whole line of breakfast treats. We had this urge to move on and away from the cupcake to prove that American baking is more than just about the cupcake.


We have been hiring more people. It has been a slow, steady climb. We will hire when the need arises. So far, we have never had to let anyone go ever since we opened, actually.


I would like to hear that President Obama is going to continue to back small business owners. There are ways to encourage growth. The number one thing is making credit easy to get. At the moment it is so difficult. It is almost comical. They need to figure out how to extend credit to small business without it being such a hassle.


We actually did go through the process in the very, very beginning of trying to secure startup money. The paperwork required a lawyer and an accountant. The SBA loans are beyond complicated: It is so much paperwork -- so much of a hassle that I could see a lot of people not applying because it is so labor intensive. It is not worth it in the end. It is almost worth it to go outside the SBA."

 I have worked in the world of small businesses, companies with 15 to over a 1,000 employees all my life, and never in my life have I seen a time when financing was as hard to get as it is today.  Its not hard to get, its impossible.

I see all the opportunity being created by technology and the internet for small businesses, for old economy start ups, and niche products, and I wonder how long we can continue to invest in technology when the natural consumer, the creators of advertising for social communities and such on the internet, of all that is being created, are disappearing.  Small businesses are the income stream for most of what today is called social media and without funding they cannot maximize the potential of what our cutting edge technology can create.

Our government cannot see past the lobbyists and special interests that represent the major firms to even notice that we could have a very vibrant job creating environment, if they could find the small innovative companies within the old economy.

I have all but given up on seeking funding, sometimes you just have to accept that you are trying to fit a square peg in a round hole; not enough tech for the folks looking for the next big thing and too much of a niche product to be of interest to old economy investors.

We are in a period of transformation and without small business we have no way to bridge the gap between today and our future economy.  So we will build roads and borrow money hoping that something changes while our major corporations continue to focus on the global economy and our innovation will be squandered with the burden of rising taxes and more entitlements.  

When The Best Of Times and Worst Of Times Collide

"It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to heaven, we were all going direct the other way..."

   --From Charles Dickens, A Tale of Two Cities


One of the benefits of years of experience in a basic commodity business like tee shirts is that you grow very accustomed to "...the worst of times...." because it becomes obvious after a while that your best years are those years when the general economy suffers.  When the overall economy is "frothy" then you will struggle and when there is a general recession your opportunities for success grow.

You develop a totally different perspective toward business and you are constantly looking at your return on your investment (ROI) for any new endeavor; the concept of 'lean manufacturing' is ingrained in you out of necessity not because you took some class or seminar on the subject.

You come to realize that employees are truly stakeholders in your organization because they sacrifice along with the company; you realize that stability, security, and being a stakeholder are just as important of a motivation for employees as is pay, fringe benefits, and advancement.

I participated in an online discussion last week where the topic was ecommerce, inventory, and efficiencies and I have to admit that I was shocked at how what I considered to be basic common sense was treated as expert knowledge.  Yes, you want to layout your inventory so that order fulfillment is efficient, logical, and error free.  You want to lay it out with a starting point then have the organization match exactly how the goods will be listed on the packing list, from left to right and top to bottom; that way you have a constant forward movement of product.

Can't wait till we get to the session on turning one's inventory!  Not too many folks have any idea how the carrying cost of inventory is such a killer to a company.  Of course, I have to remember that the term is "just in time....."

I can't help but wonder how many screen printers, how many of these new lines of embellished tee shirts, actually know how to price the cost of screen printing into their product?  That would involve time studies...

The hardest thing to get across to ones accounting, sales, or IT, is that while they are critical aspects of the company under no condition will their tasks ever impede and or stop production;  if the computer system has to be brought down then it will be done after hours, if a month end audit has to be performed it will be done after hours.  The reality is with plants in Los Angeles and in Germany you end up with about a 4 hour window in the early morning hours when the computer system can be shutdown or everything waits till the weekend.

I really have no concept of what it feels like to work for a company at "...the best of times..." or to be a wash in cash to where decision making not just involved making a good decision but rather necessitated making the best decision.  Every decision should be made as if the future of the company is on the line.

I spend quite a bit of time monitoring business trends and the world of technology/internet start ups fascinates me because I have no idea what it would be like to have someone invest $20 million dollars into an idea; I always operated on the assumption that a start up should be 6 to 8 months and then you better have a self sustaining income stream.  At which point your goal is to grow your business and increase your margins.

In my industry, your goal is to turn your inventory six times a year at a minimum and never have your cost of goods total more than 60% of your net sales.  Obviously, with B2C sales the goals change and your cost of goods should be dramatically lower than 60%; but you should be able to establish the ideal based upon what percentage of sales are B2C vs. B2B and adjust your ideal cost of goods accordingly.

Customers become real important because keeping an old customer is a lot cheaper than finding a new customer and with the ever increasing pressure of rising wages, fringe benefits, and other commodities, you have to control any costs that you can.  Keeping great employees is also cheaper than attracting and training new employees.

Yes, outside the technology/internet start up industry there does not seem to be much sense of excitement, which probably explains why my views are such at odds with the majority of my counterparts; hey, if it was easy then where would be the sense of accomplishment?

Dog Shows Teach A Business Lesson

I have a tremendous admiration for success, and I really admire success that is subversive; success that challenges the status quo and is achieved against overwhelming odds.

In 1994 a very good friend of mine informed me that he was going to begin showing dogs because he loved animals and he felt he would be "good" at it.  He asked me to go to a couple of dog shows and let him know what I thought.

So, I went to three dog shows with him and I, as I am accustomed to doing, just wondered around and observed.  Of course he kept hounding me about what did I think and until the third dog show I just kept my mouth shut.  Finally, after the third show I told him what I thought:  Dog Shows are a racket!  They are a very expensive hobby where winning has nothing to do with your dogs or your skills but rather everything to do with who you know, who you are, and what money you have behind you.

After a very long period of silence in a very dark van, as we were trying to reach home on a Sunday night, the little 5'4" 110 lb. Chinese guy in the car said, "I think I can do it!  I think I can change things and be successful....."  A guy that can buy his clothes at the young boys department has decided that he was going to become a subversive and take on the most entrenched power structure I had ever seen.

So off he went with his Shih Tzu where after the first year he had won a total of 1 point!  Since it takes 15 points to achieve the status of 'champion' I had to be the one to inform him that at his current rate the dog would be dead before it ever became a champion; talk about raining on someone's parade!

All he said was, "Just wait till next year," and not another word was spoken the remainder of the trip home.  

Now, I have known this young man since he arrived in the USA as a refugee and I learned very early on that you should never underestimate the guy!  When he puts his mind to something he will learn everything that he needs to know about it and then he will work at it until he is perfect; he hides his determination to succeed behind the most endearing charm and people skills I have ever seen.

Well, next year was different and within a couple of years he was winning every time he went to a show; not just in the breed ring but also in the group ring, which is where the game changes.  By 1997 he had won his first Best In Show.  You have to realize that dog shows are big business; most handlers have been in the business all their lives and they expect, if they are to campaign a dog and win big with it to be paid a minimum of $150,000 a year and then you have another $150,000 a year in advertising and expenses at a minimum.

In three years this young man had achieved what 99.9% of the people who participate in the sport of dogs all their lives can only dream of, he had one a Best In Show, and he was only warming up; he made it seem so easy and so natural!

Now, I can attest that no one worked harder than he did to win:  When he wanted to train his dogs around people he talked the Manager of the local Walmart Supercenter to let him train his dog IN THE STORE!  When he wanted to get his dogs accustomed to cars and traffic he did so by walking them along the busiest road in town.  When he was at a dog show he would wake at 2 am every morning and groom, trim, and prepare; six to eight hours worth of work for no more than 20 minutes, at best, in the ring!  Small show or big show didn't make a difference because the routine was the same.

By 2000 he had a cult following, he was the little guy that had taken on the status quo and won!  Even the elites of the sport were cheering him on! 

By this time he was campaigning the number 1 pekingese in the United States, had bred the number 1 pekingese in Japan, won the Pekingese Club of America's J.P. Morgan trophy, which is bigger than the Stanley Cup!  His Shih Tzu's were winning beating the biggest names in the sport, winning specialities and group placements!  He could claim that he campaigned the number 1 owner handled pekingese of all time and was in the top 5 of owner handled toy breeds of all time.  

He was dining with Bette White on the west coast and Lauren Bacall on the east coast.  He had a fan club in Europe and he was being invited to judge shows in Asia.

Then in 2006 at the same dog show that had been his very first dog show in 1994 he decided while in the breed ring with his Shih Tzu that he wanted to help a friend of his.  It was obvious that day that he could win Best In Show with his Shih Tzu, the judges that day were perfect and the competition just wasn't there but he decided that he wanted to help his friend when the breed and so he took her dog in and let her take his dog in for the breed.

He won with her dog and when he came out of the ring I looked at him and said, "What in the hell are you doing?"  He just looked up at me and said, "Somethings are more important than winning...."  Just the weekend before he had finished a pekingese by winning three 5 point shows in one weekend over all the top names in the sport!

He went home and never attended another dog show again.  Dogs that he was selling for $5,000 to $10,000 he turned around and gave them away for free and he has never watched a dog show on television and he has turned down every request for an interview from print and or television sources since.

The only comment he has made since is that, "...I lost sight of why I loved dogs in the first place...."  I hope I never forget this lesson.

Big And Tall - The Future Of Business Funding (Poking fun at the investment community)

"Getting funding for your business has had me totally perplexed.   I mean, folks are throwing bucks into sinkholes but why they won’t consider a company that has a great market and the goods is beyond me."

A quote from a friend of mine, with 10 years of experience with some of the biggest names on Wall Street, and another 15 years experience with the technology industry who in his spare time writes for Forbes.

Exactly how does one begin to answer that question?

Most Venture Capitalists have blogs and you can read them on a daily basis, you can visit Angellist, Quora, and or Kickstarter and basically you will find the same things being said a variety of different ways....and still not be able to answer the question.

I think the most interesting information comes from the Designer Fund where the mission is:

"If you're an early stage startup with a designer founder, we'll help you get to the next stage of funding and growth. If you're a designer looking to take the leap into entrepreneurship, we'll match you with hacker engineers and business hustlers to get your ideas off the ground. We collaborate with multiple accelerators and funds to build a solid foundation for your business and get you the best deals."

So, basically a bunch of designers are angry because the techies and the finance folks are cutting them out of the loop and they feel underapreciated.  Basically, their argument is that, "It's about giving designers a seat at the startup table that engineers and MBAs already have."  They believe that the focus on people with tech and finance backgrounds creates an investment climate where, "Most startups fail because they make things that people don't actually want!"  You can read more about this new venture capital fund here.

Hmm....

I guess if you have a business proposal you better have a techie or a designer as a founder or no one is going to be interested.  Or you could be like Bonobos, a company that was founded by two roommates who were graduate students at the Stanford School of Business to basically provide men with pants that make their butts comfortable!  Pants for $88 to $188 dollars a pair and a business model per selective quotes from the NY Times:

• "The Bonobos pants, which come in straight leg and boot cut, are best for those with athletic builds, although it is developing pants for slimmer and bigger men."
• "Mr. Dunn is well aware that manufacturers could easily replicate Bonobos pants, so he is trying to distinguish the company with customer service, convenience and technology."
• "Bonobos also offers free shipping both ways along with lifetime returns, and encourages people to buy and return several pairs of pants to find the right fit."

That business model is enticing enough for a major VC firm to invest $18 million dollars in?  I cannot help but wonder if the decision to invest in this start up was made by a group of young, unmarried, fellow MBA's?  I wonder what Bonobos will do once their current loyal consumers get married and have kids:  Married men with kids are not 'fashionistas' and dramatically limit their apparel purchases.  Their was once a great retailer, Castner Knotts, that had the absolute best customer service and return policy and they ended up being bought out by Dillards because of their liberal return policy!

I notice that since they received funding they have dramatically grown their product line, in fact, the whole business model has changed as they now, "...we pair our offerings with hand-picked brands to bring you an expertly curated lineup of better-fitting men’s apparel."

Hey, if that works then I can add Fatheadz sunglasses, which is a great product from a great company which Forbes has highlighted in their "20 Million Dollar Businesses That You Have Never Heard Of."  Or, I can add Sanuk Sandals in big and tall sizes!  What a great combination, big and tall tee shirts, big and tall screen printed tees, sunglasses, and flip flops!  THAT is one awesome product mix for a sized centric community!

But since most venture capitalists are young, health consious, water drinking, exercise fanatics they probably avoid at all costs noticing that the vast majority of Americans are overweight slobs who are more concerned of finding a shirt that covers their "crack" when they bend over than they are with ensuring that their pants give them the male equivalent of "butt."

Let me know when a television show is produced for "Guys With Comfortable Pants" that has more viewers than "Say Yes To The Dress - Big Bliss."

My sense of humor is getting the best of me....

How about this line from a Bonobos ad: "“When you wear the world’s best-fitting pants, women tend to stare. Even gawk. If you can handle being seen as a sex object, visit bonobos.com and order a pair.”  In a world where over 50% of the adult males are overweight?  Get the guy a shirt that fits, sunglasses, and a comfortable pair of flip flops!

Innovation, Small Business, Niches, and Money

The other day I read an article where Eric Lefkofsky, the man who put the first 1 million dollars into Groupon in 2007 and should recoup 4 billion dollars from that investment with the Groupon IPO in 2011!

There are a variety of ways to attempt to grasp the magnitude of the statement above, but right now, as I am attempting to raise $1.5 million dollars for my company my interest is in how do I entice investors to fund my company in light of the fact that the competition for investment dollars is offering returns like Groupon.  Or, one could simply state that I am trying to figure out what investors are looking for in an investment in the midst of another internet bubble.

I came across Eric Lefkofsky's blog and found it interesting.  I have also participated in conversations at Quora, connected with quite a few investors at Angel.co, and basically read as many blogs by venture capitalists, traded emails with investors, and took part in a variety of investment and or entrepreneurial programs.

Lets not forget that I spent quite a bit of my professional life growing companies, managing start ups, and getting turnarounds back on the right path; in fact I have actually been called by numerous venture capital firms to provide them with insight into the apparel industry and retail.  If my goal was to be a consultant I would be well on my way to a successful career; but I left Vanderbilt University with a master's degree rather than complete my PhD because I wanted "to do" and not just study what others have done.

I cannot help but realize that a huge gap is developing in our economy and our knowledge base:  Every internet start up has a founder who seeks to 'change the world' and every internet start up investor seeks out ideas which are "disruptive" and or "transformational" but when I talk to small businesses most of them have no idea what Groupon is, or Yelp for that matter, in fact they still haven't grasped the benefit of Facebook, YouTube, blogging, or Instagram for that matter!

There are a variety of ways to define a "bubble" and I basically see it as where the change, the disruption, the transformation, reaches a point where it gets too far ahead of the rest of the world.  A generation ago, innovation basically occured within an industry and was not an industry of and by its self.  If you read the numerous blogs of successful venture capitalists and investors, as I do, you realize that a true divide has developed in regards to investing in technology versus investing in manufacturing, or the end users of technology.

For change to occur there must be penetration; locally Groupon has two or three national chains and the balance of the local economy, the other 99.9%, are ignorant of the opportunities that Groupon represents.  Bubbles burst when the change being hyped does not achieve the results promised; we seen that the last time we had an internet bubble.  Change for the sake of change is a bubble.

The reality is companies such as mine have no where to turn for funding; sometimes you have to accept the fact that you are a square peg in a world of round holes.  I would love to ask Eric Lefkofsky, a person who I respect, exactly how technology and change can continue to achieve the returns that he can achieve from Groupon if no one is funding the businesses that could benefit from the technology?