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Creative Retailer: Price Follows DOW

This will be an unusual post in more than one way.

First, it’s about a decidedly low-tech retail business, that does not really fit this blog’s profile.

Second, it’s about a business I don’t personally care for: designer t-shirts. Tees are in the conference schwag category for me, I barely ever spend on them, and $110 (even $55 after discount) is an outrageous price, if you ask me.

Third, I really don’t like tattoo’s – and this line is all about reprinting tattoos. Yuck.  (But that’s just me.)

Fourth, I am reprinting an email sent to me in it’s entirety.  Rest assured, I’m doing it with the sender’s permission. I’m lazy, don’t wan to write a post and this makes a perfect story.  Ok, joke apart, keep on reading, there is something about creative business models here.  Here’s the letter (emphasis mine):

Hello! My name is Jeremy Parker and I am a 23 year old entrepreneur.  I am the CEO of Tees and Tats, a high-end, limited edition t-shirt line designed by world renown tattoo artist Marco Serio. We launched the line last July, with much success, selling to many high-end boutiques all over the US and Canada. 

But starting last November, are sales starting to slow dramatically as with the rest of the economy.  A large percentage of the stores we were selling to closed, and the stores that have survived are not placing re-orders. I did not want to concede to failure- because if the entrepreneurial spirit dies, America will be in a much worse place.  I knew the store issue would still be a problem, because high-end retailers are not buying goods anymore, but I came up with an idea that I thought might help our online sales.

I first lowered our prices from $110 to $55.  This helped a little bit, but people where still not buying like we saw earlier.  So I came up with a concept that at the time seemed bizarre, but now has proven to be a savior for us.

Now when a customer buys a shirt on our website (www.teesandtats.com), they are told the price of the DOW.  For every 100 points that the DOW drops within two months after the time of purchase they receive $5 dollars off of their purchase.  For example if a customer buys a shirt for $55 dollars and the DOW is 8200 and two months later the DOW is 8000 – the customer gets a check in the mail for $10 dollars.  The reason why people aren’t  buying high-end fashion- is that they are nervous about affording food, rent and other necessary living expenses.  Obviously very understandable.  So by assuring them that if the economy deteriorates even more they would get some money back – it made it very enticing for many customers.  Our sales have been up significantly since we started this.

One important additional element to the Tees and Tats philosophy is our desire to give back. For every T-shirt sold in the initial collection, we are going donate a percentage of proceeds to the non-profit ArtWorks Foundation. Based in Englewood, N.J., ArtWorks provides children and young adults suffering from chronic and life-threatening illnesses, and their siblings, access to creative and performing arts programming which encourages the use of the creative process as a vehicle for healing, communication, self-expression, and personal development. (I actually chose this charity to give to because of your piece on them a few years back.)

I just want to thank you for listening to my story, and I want to say that as things are looking bad and seems to be getting even worse – It is going to be the American people who are going to fix this problem.

Best Wishes,
Jeremy Parker

Wow.  Talk about creative business models.smile_wink  The discount is quite deep, 100 points on the DOW is nothing percentage-wise, yet it earns a 10% discount on your tee-price.  The company maximized the “DOW-insurance” program at 700 points, which would equate $35.  Is this a funny way of declaring the true bottom price of $20? 

There are a lot of open questions I have not verified around whether customers actually received refund checks, how market rallies may interfere with the calculation ( is there a specific “date of record” or duration  the DOW has to stay low), etc.

Still, I wanted to share this story as an example of thinking outside the box: a virtue a lot of startups (and established businesses) need nowadays to survive in the face of recession.  I don’t know if Jeremy will be running Tees and Tats a few years for now – but I am quite sure he’ll be running something.  He’s an Entrepreneur.

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FED-Watching

Stocks up as Bernanke says recession to end in ’09 (AP) - 28 minutes ago

Bernanke fears recession could extend to 2010 - 30 minutes ago

Now, which one is it?

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The Tale of Two Notebooks, and Yes, It’s All About Earning a Buck

One down, one running better than ever.  Thanks to the irony of TechMeme, the two news are juxtaposed almost side by side:

I’ve never considered these two Notebooks comparable, despite the common name.  Google’s one was your web-based post-it notes, barebones, easy to use.   Zoho’s version is a full-featured multimedia application to create, aggregate, share, collaborate on just about any type of content easily, be it text, database, spreadsheet, image, drawings, audio, video – you name it.  It offers a lot more, but may be “too much” if all you want is the yellow stickies.  The two apps serve entirely different needs. But I don’t want to focus on the products here, did it before: Not All Notebooks Are Created Equal.

Let’s talk about the economics: Google is simply ditching some of the money losers which is clearly the right strategy in a recession when it saw it’s primary revenue source, advertising drop radically.  A while ago (before the economy collapsed) Zoho CEO Sridhar Vembu provided great insight into why getting into applications does not make much financial sense for Google, whereas it is Zoho’s primary business.  Today we’re seeing that logic in action.

Of course  Google is not the only one, we’re seeing startups shut down service, or give up the free-for-all principle and start charging for their services.  Over at CloudAve we’ve discussed Jott as an example, but there are many others.   We may have enjoyed all these free services, but deep down had to predict this bonanza would not last forever. It’s time for rationalizing business – after all, it’s all about making a buck.

Update (1/20/09):  Surprise, surprise! (not really).  Zoho came out with a tool to import your Google Notebook data into Zoho Notebook.

Update (1/22/09) Two days later here comes Evernote with an import process.  Who’s next?

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Corporate Logos Reflect Recession

From Flickr, originally published by Business Pundit, and re-discovered by Jeff Nolan.  (Oh, yeah, I did my not-so-artistic-but-realistic rendering of the Apple logo a year ago.)

Update:  Will some of these Web 2.0 logos change in 2009?

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So is this a Great Time or a Terrible Time to Found a Startup?

Now what?  Who is right?  And the debate does not stop here, it sparked a pretty good discussion in the Enterprise Irregulars group. I think both sides are correct.  It’s a Great Time and It’s a Terrible Time… read my take on CloudAve.

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Turn the Doom-talk into Constructive Business Model Ideas

Train wreck at Montparnasse Station, at Place ...

Image via Wikipedia

TechCrunch Turns Into F**kedCompany 2.0 – says Dare Obasanjo.

Really? Tell me something I don’t already know.   Have we all forgotten that TechCrunch acquired FuckedCompany.com over a year ago?   OK, that was just an April Fool’ s Joke , but you can really say TC is unprepared for a downturn – after all, they own FuckedCrunch.

OK, on a more serious note: I also said, way back in January 2007 that TechCrunch Did Not Build it; It Can’t Knock it Down Either:

TechCrunch did not build this boom. Yes, a well-timed review helps a startup gain initial traction, but Mike does not make those companies successful: whether they make it or not, they do so on their own. And when they fail, they fail own their own merits, too.  Failures are part of business reality, and reporting on them only makes TechCrunch balanced. Without it Mike would be just a biased cheerleader (something he was accused of in the past).

I still mean what I said there, except that in the downturn there will clearly be more failures, and it won’t always be on a startup’s “own merits”.  Reporting on them is part of reality.

But what I really hope for is that TechCrunch and other influential blogs that are a strong part of the startup ecosystem will take a constructive approach, and instead of becoming doom-reporters they start discussing ways of survival – i.e. how to tweak one’s business model to establish a healthy revenue stream.

I’ll have more on this soon.

Update: I’m often amazed at the image selection Zemanta proposes. The word “train” does not once occur in my post, yet it recommended this image of a train-wreck.

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No, the Sky is Not Falling in Startup-land

Lot’s of noise today, RIP Good TimesIT’S OVER! POP GOES THE BUBBLE, Sorry, Startups: Party’s Over etc.   I think the panic is overdone.

Sure, a lot of startups will fall – and some of them would have done so without a recession anyway. Times are officially tough, but the truly strong businesses will survive, and some of the Web 2.0 whiz-kid baby-CEOs  will come out of this as battle-hardened Entrepreneurs.

Talk about Executives… some can wreck the business on their own, they don’t need a crisis: see Entellium wrecked by fraud.

Finally some startups think they can keep on re-architecting forever – see NetBooks, ViewPath (the latter just came out with a new product though.)  Good luck to them… wonder if their market runs away…

These are some of the thoughts I’m discussing on CloudAve today – read more here.  Even better, grab the feed here.

Update:  Want to get off the “Sky is falling” treadmill? Need inspiration?  Find it here.

Even better, get really inspired at Defrag.  Use discount code zoli1 to get $300 off.

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Subprime Primer – What, Me Worry? :-)

This recycled presentation is making the rounds amongst the Enterprise Irregulars this morning:

Recycled, as it was first published in February, 2008 – see the financial crisis was not that unexpected, after all.  Apologies for the language used in the last few slides – I’m just the messenger. smile_embaressed 

Of course not everyone feels a financial crisis.  Here’s a report from another Irregular:

The Monaco Yacht show finished yesterday, and this year bigger and better than ever. Lots of buyers, new now is a distinct increase of Asians, especially Chinese and of course the usual Russians.
In fact same things happening as for every general downturns – big boats are just fine, small not so good.

The big ones though see no slowing down at all, if any of you are in the market to build a not too big one in the 70 to 80 meter size (reckon a million € per meter) at a good name yard (Germany, Holland) reckon with delivery earliest in 2015. Not a slot to be found before 2012 now. (And if you are, you know who to call of course)

As always, the rich (seriously rich that is) goes "what, me worry?"

Hm… all I can add is I like this description on the Show’s site (warning: don’t click the viewer applet with Firefox under Vista, you’ll regret it):

Aft deck beach area with pool that transforms into a helideck.

Something tells me I could not afford even the YaaS (Yacht-as-a-Service) version.

 

Update: For a bit more serious view, check out We are all Japanese now.

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“SaaS as Recession-proofing Software” Theme Picking Up

It looks like I may have started ( actually, just re-started) a trend discussing How Software Can Be Resilient to Recession.

Sramana Mitra @ Forbes talks about ‘SaaS-ing’ Back At The Economy:

Some of the robustness of SaaS companies comes from the fact that the sector caters heavily to small businesses….

Fellow Enterprise Irregular Ismael Ghalimi makes the case that:

Some will gain, but most will lose, and some to be really affected by the downturn are enterprise software vendors selling expensive perpetual licenses for their products…

He than takes the oppurtunity to turn the analysis into a cocky offer to his competitors.smile_wink

Read more here

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How Software Can Be Resilient to Recession

Are we heading into Recession?  The “Big R” talk of early this year quickly subsided, economic growth returned, the markets appeared to vindicate the optimists.  US Presidential Candidate John McCain repeatedly said the economy was fundamentally strong… until just days ago, when he quickly switched to declaring a crisis.  The Wall Street Journal says we’re in the Worst Crisis Since ’30s, With No End Yet in Sight.

I don’t claim to be an expert economist, so whether the Big R is looming is not my call – but if you believe we’re in a strong economy, I have a bridge to sell you.  Let’s just focus this discussion on how Software businesses can survive in a financial crisis, which is undeniably here.

Not all will survive, and it’s probably healthy they won’t.  Tim O’Reilly, Father-of-all-things-Web-2.0, asked the question at the Web 2.0 Expo last week:

Global warming. The U.S. losing its edge in science and technology. A growing income gap. “And what are the best and the brightest working on?” O’Reilly asked, displaying a slide of the popular Facebook application SuperPoke, which invites you to, among other things, “throw sheep” at your friends.

“Do you see a problem here?” he posed, showing another slide of the popular iPhone app “iBeer,” which simulates chugging a pint. “You have to ask yourself, are we working on the right things?”

The poster-child of the Web 2.0 boom may very well become the symbol of what went wrong:

  • useless
  • consumer-only
  • ad-driven

Actually, the problem is not what they do, but how seriously they were taken.  Will Price, a very smart VC said long ago:

It may well be that Slide raising $55m from mutual fund companies at $500m+ pre-money will be the “what were we thinking” moment of the current cycle.

I’m glad they did not go public, at least not a lot of people will get hurt holding the bag.   But enough of what’s wrong, here’s what works:

  • go where the money is, and that’s businesses (“Enterprise” vs. consumer, even if it means small business)
  • deliver value – useful functionality that improves business
  • charge for it – companies actually prefer to pay for reliable, good service.

The last point brings up the price issue.  Credit will dry up. Whether we’ll officially declare Recession or not, the fear of the Big R is enough for corporate budget cuts, the disappearance of any CAPEX spending. Even worse, an entire sector almost disappeared as IT buyers.  Did you know that Lehman Brothers spent over $300M on IT in just the last quarter, right before declaring bankruptcy?   How do you sell in this environment?

The after-bubble nuclear period of “no IT spending at all” found me at a startup in 2001-2003. We did not exactly hit it big, but did not go under, either, and that’s because our model allowed us to get in the door way below the threshold that would have required higher authorization. Not classic SaaS, rather SES (Software Enabled Service), we were essentially data providers and often got into an “enterprise” account at $3k for the first month … eventually ramping up to annual $60-$100K.   Anyone familiar with Enterprise Sales knows the term Economic Buyer:  typically getting involved later at the sales cycle, approving or nuking the deal.  Well, we saw no Economic Buyer: being under the threshold, we sold to the User directly.

Of course my little business is not the only proof: Salesforce.com & WebEx thrived during the last recession. The secret is the business model: pay-as-you-go.  SaaS offers lower risk to enter, no initial cash layout, the subscription fees come out of OPEX vs. CAPEX, and is often approved by the User, not the mysterious Economic Buyer.  The barrier of entry is much lower: once you’re in, it’s up to you to grow.

In fact I suspect the looming downturn will accelerate the structural changes in the software industry: SaaS players will thrive,  traditional on-premise vendors will shrink, many will disappear.

That leaves a final point to discuss: financial solvency.  For startups, it will be increasingly hard to find investors.  For larger businesses the lack of late-stage investment, the credit crunch may be a serious impediment to expansion.   Discover the beauty of bootstrapping – you actually get to do what you believe is right for your business, not what your Board tells you.  Do less, take small steps.  Frugality is key to survival.  Small is beautiful will get a new meaning.

In summary, Software businesses that combine good old business sense: frugality, spending wisely, delivering value to businesses and getting paid for it, with a new business model, SaaS are likely winners in the downturn.  The rest are playing musical chairs. (Oh, and the bridge is still available)

(This post originally appeared on CloudAve.  Keep informed by grabbing our feed here.)

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