Tuesday, April 29, 2008

Zizzle: Immaturity makes toymaker a winner


You never know when a life-changing moment will seize hold. For Roger Shiffman, it arrived in the mid-1970s, shortly after he graduated from college. Long a toy lover and already a veteran (since age 15) of the retail industry, Shiffman had begun working at a toy wholesaler just as electronic games were being embraced by the masses.

It struck him, Shiffman says, that two things he loved — toys and electronics — were about to forge an indelible match.

"I wish everyone could have an epiphany like this," he says.

In time, his twin passions led Shiffman to build, in separate phases of his career, two highly successful toy companies. The latest, Zizzle, scored a smashing victory in 2005, shortly after its creation, when it won coveted rights to make toys based on the movie Pirates of the Caribbean: Dead Man's Chest and any sequels. One toy Zizzle eventually developed, the Dead Man's Chest play set, was named one of the top toys of 2006 by the Toy Industry Association.

A shrewd and competitive businessman, Shiffman has nevertheless had to tap into a child's imagination to achieve his stature in the toy industry. And at 54, having survived a brain tumor, he's keenly aware that a sense of humor both enriches life and helps you navigate an industry geared to children.

"You're only young once," he says. "But you can be immature forever."

From the start of his career, Shiffman wanted to run his own shop. In 1978, with a partner, he created Tiger Electronics, which developed electronic handheld games. Among the high-tech toys it created was Furby, which ignited a public sensation. In three years, Tiger sold more than 41 million of the cuddly robotic toys that talked.

In 1998 Tiger was acquired by Hasbro (HAS) for $335 million. Shiffman stayed on with Hasbro, doing marketing and brand development. But in 2001, he decided to leave.

"I just found that I needed a break," he says.

For a time after he left Hasbro, Shiffman was subject to a non-compete pact, which barred him from working for a direct rival. Mainly, he played golf and did work for charitable groups.

Then, in 2002, he discovered he had a brain tumor. It was benign, and the surgery was successful.

Afterward, Shiffman was visited in the recovery room by Marc Rosenberg, his friend and a former executive at Tiger.

As Rosenberg recalls, "I looked at Roger and said: 'You're really a crappy golfer. Can we please get back to work now?' "

Not surprisingly for a man who had just endured an operation to remove a tumor, Shiffman needed some prodding, and some time.

"I never felt that I had anything to prove," he says. "We had such great success at Tiger, and who knows if you can ever repeat that?"

Yet not much later, Shiffman, Rosenberg and two other members of Tiger's powerhouse team spun their entrepreneurial zeal into another toy company they called Zizzle, based in Bannockburn, Ill.

"It was a very risky thing to do," says David Scher, executive vice president of sales at Zizzle. The industry had grown more competitive, with less room for upstarts to take root. New companies had to struggle to find shelf space.

Yet Zizzle lunged quickly out of the box with new products. And it didn't fall back on the high-tech electronic toys its creative team had produced so successfully at Tiger. This time, Shiffman favored action toys. And he wanted a licensing agreement with Disney to create Pirates of the Caribbean toys.

"I said, 'Are you nuts? We don't do action figures,' " says Rosenberg, who is chief marketing officer. "He said, 'Of course we can.' "

They did.

"As real entrepreneurs, they relaunched the magic again," says Jonathan Samet, publisher of The Toy Book, an industry publication. "Pirates turned into an unbelievable franchise."

Zizzle's success has come even as toy sales overall have remained sluggish. Last year, the industry generated $22.1 billion, according NPD Group, a research firm, down 2% from 2006.

As a privately held company, Zizzle doesn't release its revenue figures. But Chris Byrne, an independent analyst, estimates that a movie toy line like Pirates of the Caribbean would generate about $100 million a year. Given licensing fees and other costs, he says, the profits would probably amount to $50 million annually.

Zizzle's management team has zeroed in on the most robust retail categories. Among all toy sales, action figures produced the biggest sales increase in 2007. And the video-game industry exploded last year, with nearly $18 billion in sales, up 43% from 2006, NPD says.

Many toy companies, including Zizzle, now face a heavier financial burden because the cost of labor in China has risen sharply. And testing for lead paint is arduous and time-consuming.

Nor do toy concepts last very long. "The amount of information kids get now and the speed in which it comes is like light speed," Rosenberg says. "Their wants and needs change faster."

Which is why Zizzle's creative team is perpetually on the hunt for ideas likely to connect with kids. It was one of the first companies to develop products linked with High School Musical on the Disney Channel. Among them: a karaoke microphone, which lets kids sing along with the songs, and an interactive dance mat.

"It was very successful," Samet notes.

In vying with such titans as Mattel (MAT) and Hasbro, Zizzle tries to size up the competition and act quickly. Occasionally, it stumbles. In 2006, it introduced Lucky, a robotic dog. It sold for $50, which was a bit too pricey, especially as the technology didn't work perfectly, Byrne says.

Rosenberg says Zizzle, which was just getting started, couldn't get enough of the robotic dogs made. "So it kind of died," he says.

The company isn't giving up: It will relaunch Lucky this fall. By exploiting better technology for less money, it will charge $39.99 this time.

In the meantime, industry experts say Shiffman can rightly claim to have built two companies into runaway successes.

"He's a legend in the industry, particularly with the work he did at Tiger with Furby," says Joe Lawandus, a former vice president of Disney Toys who is launching a new toy company.

Shiffman tends to avoid self-promotion. His colleagues are less reticent. "Roger is able to see a product or idea that others can't see and then help develop it," says Patty Jackson, executive vice president of product development. "He's a visionary."

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Monday, April 28, 2008

Friend or Foam - Styrophobia.com Success Story


Krista Ruchaber, 35, moved to Hawaii in 2000, in part because of how beautiful it is. She started Styrophobia last year to help keep it that way."I kept seeing lunch plates and boxes piling up on the beach, and it was ruining the environment," she says.

Styrophobia sells biodegradable and compostable food containers to replace the plastic and plastic foam ones that are frequently used.

Before starting her company, Ruchaber was a full-time acupuncturist. "My concerns for health issues led me to understand the harmful effects that plastic and [plastic foam] can have on the body," she says. She and her team have been surprised, however, to learn how little others know about these materials. "When you ask people about plastic foam, most people say you shouldn't put it into the microwave, but they don't know why. They don't know that it has been linked to health ailments and environmental concerns."

Styrophobia sells its products in local stores, restaurants and schools throughout Hawaii and is expanding its national distribution. Ruchaber projects revenue of $500,000 this year. When it comes to cost, Ruchaber and her team spend a lot of time educating people that expense isn't just about price point. "Our products may cost a few cents more, but that doesn't take into consideration the savings in both health care and the environment," she says. Ruchaber has also found that people are willing to pay more to feel that they're doing the right thing.

Currently, Styrophobia's products are made from cornstarch, sugar cane fibers and reed grass, which it sources from manufacturers in Asia, Europe and the U.S. Midwest. Styrophobia's goal, though, is to close the loop on production by using locally grown products, manufacturing items in Hawaii and having them composted there after use.

As the company expands, Ruchaber jokes that she'll eventually have to choose a tag line. "Right now we use 'There's no home for foam,' 'Don't plastic the Pacific,' and ‘Saving the world one plate lunch at a time.' We can't figure one out, because we are so passionate about this issue."

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Sunday, April 27, 2008

Walk It Baby


As the environmental consequences of driving cars become ever more clear, consumers are increasingly aware of the benefits of alternative modes of transportation. Walkit is a website that promotes the power of walking as a healthier way to get around.

Walkit's goal is to help consumers make more informed decisions about whether they choose to walk for all, or part, of any given journey. The UK-based site currently offers walking routes for London, Birmingham, Edinburgh and Newcastle/Gateshead, and plans to cover all the UK's major cities by the end of this year. Users looking for walking routes simply enter their starting location and desired destination, along with whether they prefer the most direct route or the least busy one; there's also an option to request a route "via" some other spot along the way. Thanks to a feature just added earlier this month, users going through inner London can request "fresh air" routes with the lowest pollution as well. Either way, Walkit then supplies the user with a detailed map and written directions, including distance, walking time, the number of calories burned and the carbon dioxide avoided by walking rather than riding in a car, taxi or bus.

Walkit first launched in London in late 2006, and over the course of 2007 it received more than 440,000 visits and generated nearly 670,000 walking routes. Glasgow is reportedly next on its list, and discussions are apparently also under way across the Atlantic in Boston. The site is supported by ads and sponsorships, including on-map icons and store locators.

It's pretty safe to say demand will only increase for alternative ways to get around, and there's no cheaper alternative than walking. Why not help consumers in a city near you rediscover the power of their own two feet?

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Friday, April 25, 2008

Making Millions With Eco-Pizza


Company: Eco-friendly, organic pizza company

Projected 2008 sales: Approximately $15 million

When Vaughan Lazar and Michael Gordon opened their organic pizza joint in 2006, it seemed like a gutsy attempt to snatch a piece of the pie from the top dogs. But the fraternity buddies were just catering to a different set of taste buds. Says Lazar, "We found a huge void in the restaurant industry for people eating organically."

Pizza Fusion not only serves up pizza, but it also delivers passion--starting with organic, gluten-free, vegetarian and vegan toppings and extending to the stores' recycled blue jeans insulation, potato starch utensils and countertops made out of recycled glass soda bottles from other Pizza Fusion stores. "Everything can be reused or recycled, so our stores leave literally zero footprints," says Gordon, who adds that they often buy local products to cut down on transportation waste.

First, Lazar and Gordon studied the business practices of their role models: Newman's Own, Patagonia and Starbucks. They keep up-to-date on the newest eco-friendly products on community forums and stay true to their ultimate mission by organizing discussions to help other businesses go green.

When the duo started Pizza Fusion, they envisioned a few locations throughout Florida. But when Randy Romano, a franchise veteran, tasted the pizza and spotted the hybrid delivery cars, he knew there was plenty of dough to be made. So together, the three created the Pizza Fusion franchise early last year. Now, with six stores open, 65 sold, and plans to have 100 stores open and 300 more sold by 2010, Pizza Fusion is well on its way to becoming a pizza empire.

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Thursday, April 24, 2008

Bad Money: Reckless Finance, Failed Politics, and the Global Crisis of American Capitalism

"Bad Money" is about the insecurity of America's future given a debt-gorged financial sector, and vulnerability caused by expensive dependence on imported oil. The term refers not just to the depreciated dollar but also dangerous attitudes and flawed financial products.

Phillips points out that over the last 30 years, financial services have nearly doubled to a record 20% of GDP (and an even greater share of corporate profits - 54% in '04), while manufacturing's share has halved to 13% (10% of profits), greatly imperiling the economy. En route, Washington has provided government bailouts and/or liquidity when financial institutions or methodologies got themselves into trouble (eg. S&L crisis; Citibank forced into technical failure, but allowed to stay open; bailing out junk bond investors by lowering federal funds rate; etc.), encouraging bigger problems down the road.

The positive impact of borrowing has declined about 60-70% from the 1970s-80s when such monies would mostly be used for factory and highway construction, compared to today's increasingly likely use for increasing leverage for LBOs, M&A, and hedge funds. Meanwhile, the negative likelihood of families experiencing a 50% drop in income has increased dramatically from 1970 - resulting in a greater probability of default.

Cognizance of our problems has been somewhat covered up with revisions to the CPI (understating costs of home ownership) and unemployment measures (not counting those who gave up and quit looking). Thus, the 2-4%/year CPI increase 2005-2007 would have been 5-7%/year, and unemployment would have been 8%.

Early millennium results include the housing sector (including its "ATM effect") providing 40% of the nation's growth in GDP and employment (an unsustainable rate achieved through financial gamesmanship that set the stage for the current financial and construction crash), while imported petroleum outlays rose from $100 billion in '02 to $302 in '06.

Observing from a distance, OPEC has reduced its foreign-currency reserves held in dollars from 75% to 62.5%, and Iraq and Venezuela began selling oil in euros and yen (admittedly for political purposes, at least at first). Meanwhile, the U.S. has antagonized major oil producers (Iran, Russia, Venezuela), and effectively dismantled Iraq - raising the risk of nations being unwilling or unable to supply the U.S. as supplies grow tighter.

Declining oil supplies, rising demand, global warming, our recession, and global loss of confidence in American financial markets are all converging and demand strong political leadership. Phillips, however, is not optimistic that this will emerge based on strong financial sector support for the Democratic Party and political failures in other nations needing dramatic change.

Phillips makes numerous comparisons between the U.S. today and the Great Depression, as well as the declines of Rome, Holland, Spain, and Great Britain - regardless, no predictions are made about how long or deep our current downturn will be, and he gives little or no attention to the steady amassing of dollars in Asia and associated growing unemployment of Americans. Finally, readers must also keep in mind that throughout the book he refers to $70 oil - obviously outdated vs. today's nearly $120.

Interesting Side Issue: Phillips states that food represents about 14% of the U.S. CPI, vs. 33% and 46% for China and India, respectively. Doesn't auger well for biofuels continuing to take 28% of the U.S. corn crop.

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Wednesday, April 23, 2008

Snack Attack


Jon and Dan Levy are definitely not nuts. Sure, they're passionate about nuts, but these no-nonsense guys don't let passion blind them from making good financial decisions. Dan, the founder of Nuts Are Good!, and his brother, Jon, who joined the company soon after it launched, started selling fresh-roasted cinnamon-flavored almonds from a mall kiosk in 1988. Business boomed, and that early success catapulted the company into volume distribution.

Roasting almonds was Jon and Dan's life--until the price of raw almonds more than doubled. "Prices started climbing in 2005 and they didn't stop until almost 2007," says Dan. "It looked like our sales volume was going to come to a screeching halt." As prices rose, Jon, 41, and Dan, 43, decided to explore more price-competitive snack items, like flavored peanuts and granola. "Granola--even with organic oats--is a lot cheaper than nuts," says Dan. "And with snack mixes, even if one ingredient goes up [in price], it doesn't shatter your profit margin."

Their new product line has reignited their passion for roasted snack products, and it fired up more than $3 million in sales of spicy buffalo peanuts, salty tamari cashews and crunchy organic granolas last year. "Almonds were always the biggest," says Jon. "But you start spinning off and seeing where the avenues to sell all these other products are."

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Tuesday, April 22, 2008

BookMooch.Com Success Story


Like some of the luckiest people in high tech, John Buckman made a mint on his first company and now dabbles in passion projects.

But one of his latest companies may prove he's more than just lucky, at least if you buy the Silicon Valley adage: Strike it rich once, you're lucky. Twice, you're smart.

BookMooch, Buckman's 20-month-old service that lets people trade their used books for the cost of postage, is making a small impression on a giant online retailer, Amazon.com. Even though BookMooch is free to members, the site generates an estimated half-million dollars in annual book sales for Amazon because of a browser plug-in called the Moochbar, which matches members' book wish lists to Amazon's retail inventory. For every 25 books swapped on BookMooch, at least one person buys a new book on Amazon through the Moochbar. BookMooch collects 8.34 percent on each of those Amazon sales.

"We're making money by accident," said Buckman, who spoke recently at a technology luncheon near his home in Berkeley, Calif.

Apart from still-negligible sales, what should be more of a wake-up call to the book industry is how the site is tapping into the so-called long tail of book retail with a social, free service. The long tail, as the theory goes, accounts for as much as 60 percent of the goods sold in an industry, or all those unpopular works that find a home with only a few. It's said that the lion's share of Amazon's book sales come from works that have a low sales ranking.

What's more, within the next nine months, Buckman expects to have the inventory of books--distributed among its members--that would rival that of the largest book wholesaler in the United States. BookMooch now has an inventory of about 480,000 books among its 70,000 trading members, but at its growth rate it should rival Ingram Book Company's 1 million books by early 2009, Buckman said. BookMooch's decentralized warehouse of books serves the long tail the same way that centralized warehouses like those of Ingram's serves the top of the tail.

"This is meant to be a noncommercial business, with no ads and no fees. We're just trying to do something fun and huge--like be the biggest bookstore on the planet," said Buckman, who sits on the board of the Electronic Frontier Foundation and European equivalent, the Open Rights Group. "It seems to me we should be able to trade more books than Amazon sells."

BookMooch isn't alone in appealing to people's desire to trade books or consume in a more earth-friendly way. Novel Action, Bookswap.com, and Swaptree.com are just a few of the sites that let members trade books. And while none of them is rivaling the traffic that Amazon and Google Books garner per month, they are collectively proving there's demand in the long tail. Eco-online book retailer Better World Books, which resells used books and donates some of the proceeds to global literacy projects, recently raised $4.5 million in its first round of financing to grow its business.

Buckman is a true Internet veteran. In 1994, he founded the e-mail software company Lyris with his wife, Jan. During a recent talk, he said Lyris was originally designed for groups of like-minded people to easily exchange e-mail. But, he said, it eventually became known as a spam company when it started selling to larger marketing clients that would use the software to send mass e-mails to customers. For him, the company was "desperately difficult and boring to run."

Four years later, he sold Lyris to J.L. Halsey Corp., but continued to head it for seven more years. During the luncheon, Buckman said his goal was to earn at least $3 million from the deal so that he could live comfortably on the $90,000 in annual interest. But he ended up with $32 million after 11 years with Lyris, more than enough to fund Magnatune and BookMooch.

Influenced by Buckminster Fuller
Long inspired by the inventor Buckminster Fuller, Buckman wanted to change the world by creating a company for which people would want to work for free, if they could. That's when he turned his sights to the music industry.

In 2004, Buckman started Magnatune, an Internet-era record label that would take on the major labels. Designed in the Linux model, in which developers can help improve the back-end of the music site, Magnatune is a music label that signs largely unknown artists and lets Web surfers decide how much they want to pay for their music, starting at about $5 for a record. Magnatune splits the sales with the artist 50-50.

Despite the promise for artists, Buckman said that Magnatune hasn't taken off. After five years in operation, it now breaks even with four employees. One reason for the uphill battle, he said, is that much of the $12 billion in annual sales from the U.S. music industry comes from music licensing. And because those licensing deals largely get done between two friends at a bar in Los Angeles, Magnatune artists are left out of the big music label conversations.

"Big companies don't want to do business with small fish," he said.

However, he learned a larger lesson with Magnatune. He created the service with the same construct as old-media: push something out to people and they will consume it, he said. He failed at creating a participatory environment in which people buy into the service, or have a personal stake in it.

BookMooch accomplishes that by asking people to put up 10 books of their own to receive one point, which will allow them to get their first book for free. In that deal, the new member must be willing to send off three of their own books to other BookMooch members. Unlike Lala.com and Peerflix.com--sites which have fallen down on paying postage for members--BookMooch requires that members pay to send the book. People who have more points than they can use on BookMooch, known as power moochers, can donate their points to charity groups on the site.

So far, BookMooch members have swapped as many as 700,000 books. The average member swaps 3.5 books per month, up from one book per month a year ago. The most-traded books on the site, whose membership consists largely of older moms, include Memory Keeper's Daughter by Kim Edwards (traded 780 times) and The Kite Runner (traded 585 times).

It's a sizable accomplishment considering that the Berkeley-based company has only two employees, and the project is funded solely by Buckman.

"If you want to change the world, find a better way to do something and have everyone follow it," Buckman said. "I'm not looking to generate revenue because I already made my $32 million."

When asked if he would entertain a buyout offer of his company for another $32 million, he said he would definitely have a conversation.

Even if he doesn't strike it rich with BookMooch, he may do something more valuable...like prove there's another way to tap into the book business.

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Monday, April 21, 2008

Free Logo Services - Logo Design


I am a big fan of 'freeconomy' - making money while doing something for free or providing risk-free services (I use the strategy for PickyDomains.com, when I provide services free to bloggers in exchange for publicity).

Anyhow, I've received order for a paid review from ReviewMe.Com about a company that uses freeconomy tactics for logo design.

The idea is very simple - if you want a free logo for your business, just visit this site. Of course, the choice is somewhat limited (1000 designs or close), but free is free. Essentially, what you get is an online logo creator that allows you to make your own logo, using templates and built-in tools.

How does the company make money? Well, all logos go in .GIF format. If you want to purchase the original logo artwork files in .ai and .eps files - that's extra $39.99. In addition to that, the company offers extra paid services by professional designers, so providing free services makes a great upselling opportunity.

The idea is pretty clever, but the company logo niche is already crowded. I am going to keep track of this company, in order to see, how it turns out.

If you are interested in taking advantage of the service, this is how it works:


Complete the simple registration form. This includes some basic information such as name, address, e-mail, and telephone number. Your information will allow us to open your file and begin the process of designing and producing your free business logos. The process takes only a few minutes. Please take your time to ensure the accuracy of the information. FreeLogoServices.com is a Free Logo Creator website that makes Starting Your Free Logos fast and easy.


Browse our database of free professionally designed logos. Our free logo design team spends their days creating and developing new logo concepts and personalizing them for our clients. By utilizing the latest in logo design technology, all business logos created are in high digital quality and delivered to you in a variety of easy to use graphic formats.


Select logo, colors, and text for your free business logo design that will create a more custom feel. Choose 2 colors that reflect your desired company look that you want for all your graphic needs. Our designers will use these colors in the customization of your logo based on the order of preferences you selected. You will have the opportunity of completing your logo by adding your company name. See our free logos samples here.


Within 2 business days we will deliver your personalized free business logo. This allows enough time for our logo designers to ensure the highest quality product is delivered. Logos will be delivered to the e-mail address provided during the registration process. You can then begin using your logo on your website immediately. If you like your free logo we also offer you the ability to purchase the original logo artwork files in .ai and .eps files for $39.99.

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Friday, April 18, 2008

Detroit School Of Rock Success Story


(FORTUNE Small Business) -- If you think you can't launch a business in these tough times, think again. I recently met an entrepreneur who confirmed my belief that anything is possible if you have the right idea and sufficient passion.

A few weeks back, I listed some office furniture on Craigslist. A friendly guy named Jason Gittinger responded moments later. He was on the prowl for a good deal. Gittinger described himself as "just a drummer" but also mentioned that he was starting a business.

He stopped by the next day, and I found myself completely taken with him. Of course, it helped that he'd used StartupNation.com as a key resource to write his business plan, but what interested me most was his incredible, contagious passion.

Based in Royal Oak, Mich., The Detroit School of Rock and Pop Music is Gittinger's dream business come true. The newfangled music school launches this week and promises to eliminate much of the drudgery of learning to play an instrument.

Instead of traditional music lessons, Gittinger's for-profit school immerses students in an actual five-member band of similarly skilled wannabes who jam together regularly, supplemented by practice sessions with a "music mentor."

Yes, the music usually sounds a little off, but the rising rock stars have a blast, which is critical to keeping them enthusiastic and engaged.

While the secret ingredient to Gittinger's business plan is this fun factor, the secret to getting the business off the ground - even in spite of the tough economic time - has been his passion.

Unlike so many who write business plans but never put them into action, Gittinger successfully scrounged all the key ingredients he needed to hang the "Open" sign on his door.

At every turn, his passion - verging on obsession - was pivotal.

For example, Gittinger needed to finance the build-out of the space. The drummer-turned-entrepreneur succeeded in getting an SBA-backed bank loan, which is no easy task. How did he do it? Gittinger not only wrote a business plan, but also created a 500-page training manual for the teachers whom he planned to hire. When he tossed that manual on the banker's desk, it became obvious that Gittinger wasn't your average drummer.

When he found his dream location, he got the owner excited about his concept for the school and put that "warm fuzzy" to work. He was able to negotiate the monthly rent down from $3,800 to $2,900. And because the owner took a shine to his vision, Gittinger was able to arrange for a portion of those monthly payments to be allocated to a future purchase of the property. Smart.

Next, how to furnish the place? It needed the "cool factor" musicians crave and insulated spaces where they could jam. Gittinger heard that the dilapidated Michigan State Fairgrounds was being demolished.

He got in touch with a foreman and offered to remove the wooden basketball court floor before the building was destroyed. Another sweet deal. Now his school would have gorgeous wooden floors, suffused with local nostalgia.

And on the way back to the school, he found two brand-new warehouse windows at a garbage dump, and threw those in the truck as well.

But now, how to pay for the labor to lay the floor, hang windows, build walls and paint everything - not to mention wiring, plumbing and making sure everything was up to code?

Again, Gittinger's passion played an unexpected but instrumental role. One day while he was screwing in the emergency exit lights, a 20-something guy walked through the front door. He was an aspiring guitarist who had heard about Gittinger's school.

"Dude, got any extra paint brushes?" he asked. "I'd be happy to help."

Many other volunteers helped out along the way. This wasn't just a business, people sensed. The launching of the school had become a cause, with Gittinger as its evangelist.

All in all, Gittinger estimates that he added about $1 million worth of improvements to the facility - but he spent only a tenth of that to get it finished. Better yet, he already has 90 applications from musicians who want to come play at the Detroit School of Rock and Pop Music. Not bad, considering that landing those first customers is the single most difficult task for any startup.

Based on his projections, Gittinger is now on the verge of leaping from the dollar-poor life of a drummer to the six-figure life of a drummer entrepreneur. Yeah, there's doom and gloom in all the major economic indicators. But does that really matter to Gittinger? Frankly, I'm not even sure he knows there's an economy out there. He's far too focused on his grand opening.

Next week I'll take up specific strategies that real entrepreneurs have used to counteract the impact of the recession.

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Thursday, April 17, 2008

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Wednesday, April 16, 2008

Chew On This?


Viewers of Andrew Zimmern's Bizarre Foods television show know that some foods are not for the faint of heart. Catering to consumers who would like to experience such curiosities first-hand, online purveyor Edible offers an introduction to delicacies that may shock less adventurous eaters. Giant toasted leaf-cutter ants, mopani worms, reindeer pate and Thai green crocodile curry are among Edible's offerings, along with Lizard Wine, Civet Coffee and Monkey-Picked Tea Wash. A range of unusual or downright alarming products are available in six categories: Insectivore, Herbs & Spices, Aphrodisiac, Carnivore, Herbivore and Apothecary. Edible, which is based in the UK, provides detailed information about the origin of each product, including species and geographic data. Prices are as exclusive as the products themselves—GBP 12 for a tin of green crocodile curry, for example, or GBP 10.95 for a small bag of mopani worms.

Eating insects and other unusual foods promises not just a new experience for gourmet adventurers sick of the usual fare, but also a way to pick up some status stories that can be used to impress friends, family and the world at large. As consumers increasingly look for the newest, the rarest and superlatives of every kind, these types of offerings could really catch on both online and off. One to "hop" into in the gourmet world near you? Just be sure to follow Edible's lead in the branding department—chocolate-covered ants in bulk bins don't have quite the same appeal ;-)

Free $500 Sears Gift Card

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Submitters Wanted

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Tuesday, April 15, 2008

How To Make Money With Textbook Rentals


BookRenter.com is yet another example of a web start-up leaping into a nightmarish logistics problem to make life easier for its customers. The US venture has amassed a multi-million-volume library of new or near-new textbooks, which it rents out to students at college campuses throughout the country. Rental periods range from one to four months, and the savings for students can reach 75 percent of a book’s retail price. Adopting the increasingly popular ‘Netflix model’, BookRenter offers students convenient delivery options and lets them return books by UPS at no charge. Rental terms can be extended as needed, and students can also decide to buy a book if they’d like to keep it.

Of course, BookRenter must compete with established campus retailers, as well as new ventures that are offering free textbooks sponsored by advertisers (see trendwatching.com’s free love briefing for more on that). Even so, BookRenter appeals to consumers who are happy to rent instead of own, choosing flexibility and savings over ownership. As the company grows, it could also easily add downloadable or online texts to its offerings, and could incorporate web 2.0 features to keep students engaged throughout the academic year. Students might be encouraged to upload their notes about particular titles, for instance, and include comments about their classes.

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Monday, April 14, 2008

The Homies Success Story


HERCULES, CALIF. -- Ten years ago, David Gonzales created a hit with "The Homies," 2-inch plastic figurines depicting characters from the barrio, complete with bandannas and baggy pants. Inspired by the homeboys he grew up with, they were sold, quarter by quarter, in gum ball machines in mostly Latino neighborhoods.

Gonzales was lambasted by police and prosecutors, who said the impish images exploited gang life for profit. Naturally, they then sold better than ever: more than 120 million to date.

The 47-year-old Gonzales, now a father of three children in college, lives in an elegant two-story Spanish-style house overlooking San Francisco Bay, just down the road from the flinty central Richmond neighborhood where he grew up.

"I call this house 'the house that the Homies built,' " he said.

Gonzales has been featured in national magazines, including Rolling Stone, and rubbed shoulders with celebrities. His characters have adorned back-to-school folders, lunchboxes, breath mints and beach towels. The Pasadena Museum of California Art is hosting an exhibit on his Homies, and Nintendo will soon release a Homies video game.

Yet there has been a gnawing feeling of unfulfilled goals and unmet expectations. He wanted to hit the big time with an animated TV show -- something that would really leave his imprint. Oil paintings by Gonzales, often with religious themes, hang on the walls of his home -- a reminder that the artist created the toy maker, not the other way around.

He felt harried by a sense that time was slipping away, sounding curiously like someone stuck in his own plastic bubble. Sometimes, he bared his soul to a priest.

But not just any priest.

Gonzales, one of five boys in a family scraping by in a tough neighborhood, grew up intense, artistic and studious. He asked his parents to take him out of a Roman Catholic school and enroll him in a public school because the latter had an art program.

"I knew David was going to be an artist," said his mother, Agnes.

His brother Robert, younger by a year, hung out with a rougher crowd. He got into fights, burglarized homes with his friends and landed in jail. He dropped out of high school.

The brothers were close, but their paths kept diverging. David enrolled at California College of the Arts in Oakland. He drew a comic strip for Lowrider magazine with characters familiar -- for better or worse -- to just about anyone growing up in Mexican American barrios. Robert moved to Nevada to work in the Job Corps.

One day in 1980, David got an urgent call from a hospital in Reno.

Robert and some friends had scuffled with a group of young men on the side of a desert road. Someone had hopped into a car and gunned it in Robert's direction, pinning him between two cars. His right leg had to be amputated below the knee.

When David and their mother reached the hospital, a priest told her that Robert must have been pulled from the grave by a guardian angel. The priest also remarked that Robert was highly spiritual, a comment that surprised his family.

David went back to college and Robert returned to his parents in Richmond. But even in a wheelchair he was rebellious, blowing insurance money on a lowrider and partying harder than ever. He moved out but soon felt lonely, isolated and miserable. He drank a lot.

One day, Robert returned to Richmond and found David in their parents' garage. If anyone could understand him, Robert figured, it would be David.

Robert wept. He told his brother he wanted to come back home. But he felt ashamed. What Robert really seemed to crave, David thought, was forgiveness -- penance.

"The prodigal son spends his riches and comes home. He rejects his parents' love and direction," David said, recalling what he learned in church and Catholic school. "A lot of people screw up in their lives and leave, and their parents slam the door in their face when they come back."

But David knew that would not happen to Robert, even if his brother had doubts. "Just speak to Mom and Dad," he told him. "They'll understand."

So Robert spoke to them.And they welcomed him back.

In the ensuing years, David made money designing T-shirts and selling them at flea markets and liquor stores. One of his first bestsellers featured Barturo, a barrio version of Bart Simpson who asked: "¿Qué pasa, dude?" Another successful shirt featured the Virgin of Guadalupe.

He took a job as an artist with the Postal Service in Oakland to support his wife and children. He painted a huge mural titled "Journey of a Letter" in a post office lobby in Fremont but eventually quit so he could pursue the T-shirt business full time, refining his barrio creations.

Then a manufacturer called him about making plastic figurines of his comic strip characters.

Meanwhile, after his garage chat with David, Robert patched up things with his parents, enrolled in vocational school, graduated with honors and took a job at a savings and loan. But, as David would feel years later, Robert sensed something was missing in his life. There had to be, he decided, a reason he survived the attack. One day, he called his parents into the living room and announced that, at age 24, he wanted to become a priest.

"He was the last person I expected to be a priest," his mother said. "When you think of a priest, you think quiet and studious. Robert was so rebellious."

In 1989, the year the Homies figurines made their debut, Robert took his religious vows and a new name, Masseo, after one of St. Francis' followers. When Robert was ordained as a Franciscan priest seven years later, David read a speech.

"Knowing Father Masseo . . . I'm sure he'll be dealing with a lot of problems facing young people, such as drugs, gangs and teen pregnancy," David said. "He'll be an important part of a lot of baptisms, first communions and confirmations. Those will be his children."

Soon enough, David would need Masseo for his own talk-in-the garage moment.

He was making lots of money. By most accounts, Homies were the best-selling character brand in vending-machine history. But police and prosecutor complaints were wearing on him. Many stores stopped selling Homies, and lots of people thought he was glorifying gangbangers and profiting from it.

The Homies, with names such as Chuco, Joker and Poco Loco, were just his humorous tribute to a subculture of Latino life, he said. "I'm not going to stop gangs, and I didn't create them," David said, sounding slightly exasperated. "They exist. Just like they exist in the regular Hispanic community, they exist in the Homie world."

David fired off a frustrated e-mail to his brother, saying that he was thinking of going back to the Postal Service. He found it hard, David said, to accept that "God blessed me with all this . . . artistic talent for that job in life."

"God didn't give you this talent for nothing," his brother replied.

The priest also reminded him that even a toy maker had a larger responsibility. Not every Homie had to be vato, a dude in the barrio.

So David kept at it. He created El Paletero (the ice cream vendor), who works to bring his grandchildren from Mexico. And Officer Placa, a rotund, doughnut-loving cop who "worked the barrio for about 20 years and knows all the Homies by name."

Robert suggested he create a figurine of a homeboy in a wheelchair -- a common sight in gang-afflicted neighborhoods. Willy G. became the most popular Homie ever. Soon, David got calls from the Special Olympics and from people who coached youngsters with disabilities.

He also created a homeless man, a young student and an activist. But no character would have a life of its own, and bind the two brothers, so much as El Padrecito ("the little father") -- a Franciscan priest with robes, sandals and stylish sunglasses who "acts like a second father to many of the Homies" and looks a bit like Robert.

The Padrecito turned out to be more than just a figurine. Masseo adopted him as his personal logo and found that the Homie helped him reach young people in need. Robert created El Padrecito's Online Church, where he fields questions, offers upbeat advice, counsels the troubled and sometimes delivers a religious message in rap.

"My life would probably be a lot more boring without the Homies," the priest said.

Robert talks optimistically about his dream of opening a monastery in the town of Guadalupe and reaching ever more people through the cyber-church.

To help Robert along, David sold him the rights to El Padrecito for $1 and gave him permission to use all of the Homies in his religious efforts. And last year David created Santos, a line of figurines of saints and religious figures, such as Pope John Paul II. David also donated $20,000 to his brother's growing cyber-church.

Last year, a young woman from Houston e-mailed El Padrecito to say she was about to earn her college degree. She wanted to thank the father for helping her cope with the execution of a family member on death row years before.

"Crazy as it sounds," she wrote, "if I hadn't written to you so long ago, my life may have turned out differently and I could have been just another statistic, just another face on the welfare line."

Could the priest have reached out to the young woman without El Padrecito? Probably, but the Homies certainly made it easier, Robert said. And the priest brought the artist a measure of redemption as well. "He helped the Homie family stay on the right path," David said. "It was reaffirming for me, and it let me know that I had not gone too bad."

And who would have ever expected that from the creator of Chuco, Joker and Poco Loco?

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Saturday, April 12, 2008

Why $19.95 Sells And $20.00 Don't

Ever wondered why retailers price goods at $4.99 rather than $5.00? Here is the best scientific explanation I read:

Why Things Cost $19.95, by Wray Herbert, SciAm Mind Matters: ...[M]ost of us are motivated by the desire for a fair deal, and we employ some sophisticated cognitive tools to weigh offers, fashion responses, and so forth—all the to-and-fro in getting to an agreement.

But how does life’s dickering play out in the brain? And is it a trustworthy tool for getting what we want? Psychologists have been studying cognitive bartering for some time, and several basics are well established. For example, an opening “bid” of any sort is usually perceived as a mental anchor, a starting point for the psychological jockeying to follow. ... What makes us settle on a response?

University of Florida marketing professors Chris Janiszewski and Dan Uy suspected that ... some characteristic of the opening bid itself might influence ... bidding behavior. In particular, they wanted to see if the degree of precision of the opening bid might be important to how the brain acts at an auction. Or, to put it in more familiar terms: Are we really fooled when storekeepers price something at $19.95 instead of a round 20 bucks?

Janiszewski and Uy ran a series of tests to explore this idea. The experiments used hypothetical scenarios, in which participants were required to make a variety of “educated guesses.” For example, they had subjects think about a scenario in which they were buying a high-definition plasma TV and asked them to guesstimate the wholesale cost. The participants were told the retail price, plus the fact that the retailer had a reputation for pricing TVs competitively.

There were three scenarios involving different retail prices: one group of buyers was given a price of $5,000, another was given a price of $4,988, and the third was told $5,012. When all the buyers were asked to estimate the wholesale price, those with the $5,000 price tag in their head guessed much lower than those contemplating the more precise retail prices. That is, they moved farther away from the mental anchor. What is more, those who started with the round number as their mental anchor were much more likely to guess a wholesale price that was also in round numbers. The scientists ran this experiment again and again with different scenarios and always got the same result.

Why would this happen? As Janiszewski and Uy explain..., people appear to create mental measuring sticks that run in increments away from any opening bid, and the size of the increments depends on the opening bid. That is, if we see a $20 toaster, we might wonder whether it is worth $19 or $18 or $21; we are thinking in round numbers. But if the starting point is $19.95, the mental measuring stick would look different. We might still think it is wrongly priced, but in our minds we are thinking about nickels and dimes instead of dollars, so a fair comeback might be $19.75 or $19.50.

The psychologists decided to check these lab findings in the real world. They looked at five years of real estate sales in Alachua County, Florida, comparing list prices and actual sale prices of homes. They found that sellers who listed their homes more precisely—say $494,500 as opposed to $500,000—consistently got closer to their asking price. ... Furthermore, houses listed in round numbers lost more value if they sat on the market for a couple of months. So, bottom line: one way to deal with a buyer’s market may be to pick an exact list price to begin with.

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Friday, April 11, 2008

How To Be A Successful Blogger Mom


Lots of businesses get hate mail, but few owners react the way Heather Armstrong does. She prints out nasty emails, puts them in her driveway and drives over them with her car. "That's the attitude I have," she says, "and it's made my life a thousand percent better."

Steeling herself against vitriol is one of the challenges of being, by many measures, the nation's top parenting blogger. The 32-year-old at-home mother's irreverent, occasionally profane and often hilarious musings on prosaic topics from potty-training to postpartum depression have propelled her blog, Dooce.com, to No. 59 among the Web's top 100 blogs, according to Technorati, a blog search engine. The Salt Lake City resident enjoys enviable influence and enough ad revenue that her husband Jon quit his job in 2005 to manage advertising for Dooce (rhymes with moose).

Among the Web's 200,000-plus bloggers on parenting and family, few have succeeded to the extent of Ms. Armstrong; countless at-home parents would love to be in her position. But less obvious is the behind-the-scenes price an at-home mom pays to shoulder her way to prominence in the blogosphere -- giving up her privacy, sustained time off and any remnants of work-family boundaries at all.

Most powerful individual bloggers, such as Arianna Huffington of HuffingtonPost.com on politics, or Mario Lavandeira of PerezHilton.com on celebrities, keep a measure of personal distance by blogging on public topics. In contrast, Ms. Armstrong writes about herself, her husband, her 4-year-old daughter Leta, clashes with her parents and the escapades of her dog Chuck. She has the ability "to make the mundane seem interesting," says Pete Blackshaw, an executive vice president at Nielsen Online. In a measure of fans' devotion, a recent post on removing a raccoon from her chimney drew 530 comments.

Mommy blogs in general tend to be everyday diaries of details one might share over coffee -- baby's first step or the perils of finding a preschool. Most are blander than Dooce, less humorous and significantly less profane.

Most Web diarists, for example, are too reserved to report, as Ms. Armstrong does, that she's "married to a charming geek," had "lived life as an unemployed drunk" for a while, or landed briefly in a mental hospital for postpartum depression. Some mommy-bloggers find her cursing and vulgarity offensive. But it's that outrageousness, humility and raw honesty that also feed her bond with readers, making her dominant in an emerging Web sector Mr. Blackshaw calls "The Power Mom."

Ms. Armstrong's fan base is a powerful lure for advertisers. Neither she nor her husband will discuss ad revenue, but they and the Internet rating service Quantcast say that Dooce draws about four million page views per month. In a "quick back-of-the-envelope guesstimate," Shani Higgins, Technorati's vice president, business development, estimates the site could yield $40,000 a month in revenue from companies coveting her traffic, such as BMW and Verizon.

Ms. Armstrong's product endorsements -- bestowed only on items she's purchased, she says -- wield impressive clout. Yukiko Kamioka in Colchester, England, says she was struggling with only 10 visitors a day to her Web site, seabreezestudio.co.uk, until Dooce endorsed her handmade bags; 3,000 visitors immediately swamped her site, and she soon sold out of her merchandise.

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Thursday, April 10, 2008

Man finds niche painting goalie helmets


Jeff “Pappy” Early of Hermantown started putting pinstripes on buddies’ cars on weekends in the 1970s, admittedly, he said, to earn a little beer money. At the time, disco was hip and vans with painted murals were the rage.

Early enjoyed the art, but he got into a different type of pinstripes when he went to work for JCPenney. Early worked his way from stock boy to department manager, but after the company downsized, Early took a severance package in 2001 after working there for 28 years.

“I was like, ‘Now what am I going to do?’ ” he said.

Early got back into painting, his true love, but he never dreamed where it would take him. Now, most of Early’s work isn’t done on hot rods, but on hockey goalie masks.

“That’s primarily because of geography,” said Early, who never played anything more than pond hockey growing up in Duluth. “You do work that lends itself to where you live, and, of course, this is hockey country.”

Early, 57, has painted masks for clients from Southern California to upstate New York, from Duluth, Minn., to Duluth, Ga. He has done work for the likes of former Minnesota Duluth goalies Isaac Reichmuth and Josh Johnson, and he is an authorized painter for a company out of Huron, Mich., that he hopes could lead to work for NHL goalies.

Early still does custom automotive painting and “garage art” — which he calls “art on steel canvas” — that lends itself to a garage, den or rec room. Early had mostly automotive-themed work on display at the World of Wheels car show this past weekend at the DECC. Tucked away amid the custom Camaros and 1934 Fords were Early’s hand-painted signs featuring pinup girls, dragons and flames, and custom gearshift knobs. However, Early has discovered that specializing in goalie masks is an easier way to turn a profit. He uses his Web site, www.airkraftstudios.com , to display his work to prospective buyers.

“Somebody might send me a trunk or truck door or even motorcycle parts, but the cost is prohibitive,” Early said. “Whereas with a goalie mask, at best, it’s $12 or $14 to ship it from practically anywhere in the country.”

Early, who attended UMD in the early ’70s, did evening work for a sign painter who helped teach him the skills he uses today. At the time, signs and billboards were painted by hand and an apprentice gradually learned the skill from a master, before advances in technology made it a lost art.

Early, who was majoring in political science and history, found he had a knack for it.

“I thought I was going to be a lawyer,” said Early, whose oldest son, Brett, recently graduated from art school. “I never thought I’d be in the art world, but I think it’s in the genes. My father had the best handwriting I’ve ever seen.”

Craig and Kelly Smith of Minneapolis approached Early’s World of Wheels booth on Saturday at the DECC. They had purchased “nose art” from Early at a previous car show. Nose art is a painting on aluminum meant to resemble the nose or fuselage of a World War II-era plane.

“We framed it and hung it up in our bathroom, and I can’t tell you how many people have complimented us on it. It’s awesome,” Kelly Smith said to Early. “We could use some of your business cards to hand out.”

Early, who brought 300 business cards to the three-day event, had given them all away by 1 p.m. Saturday. Early, who adopted the phrase “The Devil’s in the Details” as his motto, went on to explain the technique he used to create depth perception in rivets and bullet holes in the side of an airplane.

“His work is amazing,” Kelly Smith said.

With old-school techniques learned years ago and airbrush technology that allows him to paint colors fading in and out, Early said he can paint just about anything. He said goalies are generally looking for three types of masks:

* A full face mask that features an intimidating look, with the cage of the mask serving as the open mouth of a team mascot.

* A pictorial that allows for more variety and generally features a theme. Early, for instance, did an Arabic mask for a Muslim player that featured various holy sites of the Islamic world such as Mecca.

* A memorial meant in remembrance of someone or something.

Former Hermantown goalie Nate Hardy, who helped lead the Hawks to an unbeaten season and the Class A boys hockey title in 2006-07, had Early paint a mask for him before his junior year that featured a ferocious, animated hawk. He said he probably will keep his mask for life.

“[Early] gave us his input, and that helped a lot because he knows what he’s doing,” Hardy said. “He knew what colors looked good and would stand out. He gave me a few options, and I kind of picked out the one that fit best. It turned out great. I got a lot of compliments on it. It’s starting to show some wear and tear, but it’s nothing that couldn’t be touched up.”

Early starts with a clean mask, and after stripping it of its hardware — the pads, bars and straps — he puts down the base color. He covers the base color with a clear coat so that if he makes a mistake, he doesn’t have to completely start over. After finishing the painstaking artwork one brush stroke at a time, he takes the mask to Arrowhead Auto Body for a professional clear coat that essentially seals in the design and protects it from slap shots and other rigors of the game. The clear coat, which is petroleum-based, amounts to about 60 percent of the cost of each mask.

It’s worth it. Early said he has had only one incident where the paint chipped, and that was because the helmet’s fiberglass was defective.

“I’ve never had one of my masks come back where the customer said, ‘Boy, that’s just wrong,’ ” Early said. “That tells me they like what I’m doing.”

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Submitters Wanted

Tuesday, April 08, 2008

Why Insurance Companies Are Afraid Of Zuzzid


One of the great levellers is the helpless feeling most of us have after an unpleasant encounter with an insurance company. Angry ranting frequently follows, and that’s just where Zuzzid comes in: By allowing users to share their insurance experiences, good and bad, it provides a way for them to hold insurance companies a little more accountable.

Registered users on the site can not just rant but also rave, as well as ask questions and learn from the collective experiences of others. A comparison feature totals all the bad and good comments about each particular company, presenting a quick ranking of where they all fall. A price engine, meanwhile, uses collective data to predict what a particular user will have to pay for a particular type of insurance.

The site is aimed at consumers just in the UK, and it’s actually run by UK-based insurer Norwich Union—which is also among the many companies rated. That slightly covert affiliation helps explain why the site doesn’t feel like a genuine grassroots one would—there is no “About Us” section to speak of, for instance—and suggests at least the potential for less-than-pure intentions. But it’s a great model for opinion-sharing sites in any number of like areas. For the companies being discussed, such sites could also make customer surveys obsolete with their wealth of information about the real word of mouth. Web-savvy entrepreneurs: which other industries can you unleash transparency tyranny on?

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Monday, April 07, 2008

Venture Capital's New Math - Do Less, Get More.


Three years ago, Peter Thiel, who runs a small venture-capital concern called Founders Fund, plowed $500,000 into a little-known social-networking Web site called Facebook Inc. Later on, his company invested a bit more.

That was a good call. The paper value of Mr. Thiel's initial stake has increased more than 50 times. Facebook now ranks among the hottest online properties, with some 59 million users and investors such as Microsoft Corp. piling in.

Mr. Thiel, the former CEO of online-payment company PayPal, is making waves in Silicon Valley with an investment strategy that differs significantly from the traditional approach. His company invests only modest amounts of money, sometimes just a few hundred thousand dollars, and focuses on entrepreneurs Mr. Thiel and his partners often know personally. He also takes an uncharacteristically hands-off approach to company management.

Already, the gambit has yielded several potential winners like Facebook.

The venture-capital world "definitely needs to be shaken up," says the 40-year-old Mr. Thiel, an avowed libertarian who helped bankroll the movie "Thank You for Smoking," a satire about improving the reputation of cigarettes.

His company also reflects how a new type of venture capitalist is emerging, as start-up costs for Internet companies decline sharply. Many start-ups now need a bankroll of no more than a few hundred thousand dollars to get rolling, compared with the millions of dollars required a few years ago.

Other companies capitalizing on this trend include First Round Capital in the Philadelphia suburb of West Conshohocken, Pa., run by former Internet entrepreneur Josh Kopelman, who started online-commerce site Half.com and later sold it to eBay Inc., and Silicon Valley concerns such as True Ventures and Baseline Ventures. Many of the companies now manage money for outside investors, unlike informal "angel" investors who typically make small, one-time investments with their own money.

Most traditional VC companies want to invest larger sums, several million dollars, say, for large stakes in start-ups and then exert control over the companies' operations. Some demand "liquidation preferences," or guaranteed returns if companies are sold.

'Cushy Jobs' of VCs

Venture capitalists often can be too quick to fire start-up founders and replace them with professional managers, Mr. Thiel says. He blames a cultural divide: Many VCs "have these very cushy jobs, they get paid a lot," and often can't relate to founders, he says.

With so much money chasing deals in Silicon Valley these days, start-ups can afford to be choosy in picking their financial backers. They are increasingly turning to companies like his that offer less of a "command and control" model, he says.

Mr. Thiel and his fund's other partners, including two other PayPal co-founders, Ken Howery and Luke Nosek, also claim an advantage because of their front-line experience starting companies themselves. Mr. Thiel also runs a hedge fund, Clarium Capital.

The Facebook coup was one of several Founders investments that have generated "a healthy amount of envy" from other venture capitalists, says Max Levchin of Slide Inc., a start-up maker of software called widgets, or mini-applications used to decorate Web pages. In 2004, Mr. Levchin invited Mr. Thiel to be one of Slide's first investors, meaning bigger venture companies such as Mayfield Fund and Khosla Ventures could only invest later, for more money.

Heart in San Francisco

Mr. Thiel, who based Founders Fund in San Francisco rather than the traditional VC hotspot of Sand Hill Road in suburban Menlo Park, Calif., is structuring deals differently from how traditional venture capitalists do. Significantly, the fund often buys only a 5% or 10% stake in a company and sets up a special class of stock that start-up founders can sell while they are building their companies -- and before venture-capital investors see profits. That way, the thinking goes, the company founders can reap some financial reward and stay motivated to build the company before an IPO or company sale, which can take years.

Some traditional investors don't think founders should make money before backers do, since early paydays might distract them from the task at hand.

All of this is causing traditional VC firms to re-examine the way they invest in tiny tech start-ups. VC concerns including Trinity Ventures, for example, are now letting a few of their entrepreneurs "take money off the table" early on by selling stock.

Many big venture firms have also started looking at much smaller deals. Accel did six deals less than $1 million this year, although the company says that was in response to increasing valuations for larger-sized investments.

About a year ago, Charles River Ventures announced a program to offer $250,000 loans to fledgling Internet start-ups, far smaller than its usual investment size. Charles River is now also making equity investments in companies through its QuickStart program.

Partner George Zachary said his company launched the program because it was encountering many companies that didn't need a traditional, multimillion-dollar VC investment and the attendant hand-holding.

Just how successful Mr. Thiel's investing tactics are remains to be seen; Founders Fund hasn't yet seen any payout from the Facebook stake. However, it recently collected a big return when one of its investments, computer-security and antispam concern IronPort Systems Inc., was sold to Cisco Systems Inc. for $830 million.

Some Backlash

Mr. Thiel acknowledges his company faced resistance from blue-chip investors when it set out to raise money for its latest, $220 million venture-capital fund. One large institutional investor, who declined to be named, said he was put off by Founders Fund's anti-establishment pitch. Others wonder whether Founders Fund could soon tap out its close-knit network of entrepreneurs and run out of companies to fund.

"The early-stage venture game has always been about getting in early and getting in cheap," says Founders Fund partner Sean Parker, who helped start companies including online-music service Napster and online address-book company Plaxo Inc. "Some of those deals are now going to funds like ours."

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Saturday, April 05, 2008

Business Book Of The Week - Blue Ocean

What is a BLUE OCEAN STRATEGY? The authors explain it by comparing it to a red ocean strategy (traditional strategic thinking):
1. DO NOT compete in existing market space. INSTEAD you should create uncontested market space.
2. DO NOT beat the competition. INSTEAD you should make the competition irrelevant.
3. DO NOT exploit existing demand. INSTEAD you should create and capture new demand.
4. DO NOT make the value/cost trade-off. INSTEAD you should break the value/cost trade-off.
5. DO NOT align the whole system of a company's activities with its strategic choice of differentiation or low cost. INSTEAD you should align the whole system of a company's activities in pursuit of both differentiation and low cost.

A red ocean strategy is based on traditional strategic thinking - e.g. Harvard's strategy guru Michael Porter.

Some cases:
* Airline industry price wars result in bankruptcies and low profit margins. Southwest Airlines creates a new market by offering the speed of air travel with the low cost and flexibility of driving.
* Golf equipment industry competes to win a greater share of existing golf customers. Callaway Golf creates "Big Bertha", a golf club with a large head that attracted new customers to golf that had been frustrated by the difficulty of hitting the ball.
* The cosmetic industry creates a red ocean with models, expensive advertising, and promises of youth and beauty. The Body Shop creates a blue ocean that lasts more than a decade by creating functional cosmetics that defied the industry which sold emotionally appealing cosmetics.
* The wine industry gluts the market with a red ocean of thousands of brands competing on the finest oaks and tannins and legacy winey names. Casella wines creates [yellow tail], a blue ocean wine that succeeded by eliminating complexity, elitism and consumer confusion and creating a fun simple image that non-wine drinkers could enjoy.

A blue ocean is created in the region where a company's actions favourably affect both its cost structure and it value proposition to buyers. Cost savings are made from eliminating and reducing the factors an industry competes on. Buyer value is lifted by raising and creating elements the industry has never offered. Over time, costs are reduced further as scale economies kick in, due to the high sales volumes that superior value generates.

Examples of strategic moves that created blue oceans of new, untapped demand:
- NetJets (fractional Jet ownership)
- Cirque du Soleil (the circus reinvented for the entertainment market)
- Starbucks (coffee as low-cost luxury for high-end consumers)
- Ebay (online auctioning)
- Sony (the Walkman - personal portable stereos)
- Cars: Japanese fuel-efficient autos (mid-70s) and Chrysler minivan (1984)
- Computers: Apple personal computer (1978) and Dell's built-to-order computers (mid-1990s).

The INSEAD professors Kim and Mauborgne have written regularly on the subject of Value Innovation since 1997 in Harvard Business Review. Being a business development manager, their thought leadership on strategic innovation has inspired me tremendously over the years. Their articles have been standard texts for many MBA students for some time (e.g. "Value Innovation", "Creating New Market Space", "Charting your Company's Future"). I expect their first book to be just as dominant in any strategy library as Michael Porter's books (the guru behind the classic red ocean strategies).

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Thursday, April 03, 2008

Peer-To-Peer Student Loans


New York-based Fynanz, which is gearing up to launch in select states within the next quarter, offers students an "open loan" process for financing their education. To apply for a loan, students fill out an application and create a personal profile, including the amount and interest rate desired. Tapping into 15 years' worth of student loan data, Fynanz uses that information to give each student a grade and place them in one of six groups reflecting both their credit score and their academic characteristics, among other things. Individual lenders including friends, family and alumni of the institution the student attends are then given priority as they bid alongside lender networks to fund the loan. The more participants bid on the loan, the lower the winning rate is likely to be, Fynanz says. Servicing fees will be "no more than" what other marketplaces charge, company CEO Chirag Chaman says, but there will be no application fees or hidden costs for borrowers. For lenders, meanwhile, the benefits are attractive returns and the knowledge that they are performing a social good.

Fynanz's platform is built using the same characteristics that traditional lenders use, preserving the legality and distinct tax status of the education loan, Chaman explains. There is also likely to be increasing demand for student loans, he predicts: "I came from the student loan world, and there are some big problems there. Those cracks have turned into huge gaps over the last year, and personally, I think the worst is yet to come. People used to dip into home equity, but that's not there anymore."

The P2P lending market, meanwhile, could grow to between USD 5 billion and USD 10 billion in annual volume within 10 years in the US alone, according to data released this week by Online Banking Report. Is there room for niche players? Time will tell. Keep an eye on this one!

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Submitters Wanted

I need a few submitters for Madconomist.com. Basically, you'll get paid $1 for each Madconomist.com story submitted to Digg or Reddit. IMPORTANT! I am not looking for spammers or people with spammers mentality. I need people who use Digg and Reddit on a regular basis and wouldn't mind submitting older stories from MadConomist.Com for money. Absolutely no spamming, trickery or using bots are allowed. The pay is $1 for each Reddit submission and $1 for each Digg - there are about $400 to $600 to be made.

If you are interested, I need you to pick one story on Madconomist.com that you like, submit it to either Reddit or Digg and send me a link, so I can check out your profile to make sure that you are the right person for the job.




All submissions should be sent to SUBMIT AT MADCONOMIST DOT COM

I am willing to hire several individuals for the job and there will be a daily limit for submissions - something like "no more than 15 submissions per day".

Here are some Madconomist.com stories that you can start with:

Market Rises Sharply On April Fool's Joke

Private Equity: "Nothing More than a Clumsy Trick"?

Students Plagarize Honor Code


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Tuesday, April 01, 2008

Buggy.Com Story


(FSB Magazine) -- My first attempt to build a business was raising Morgan horses, a breed with its own circuit of equestrian shows. That was when I was still working at General Motors, overseeing an assembly line that upholstered cars. The job was miserable, but I kept it because selling horses never made me any money.

Then one day my wife and I saw for sale a 100-year-old doctor's buggy parked on a neighbor's lawn. We thought it might bring attention to our horses, so we bought it, fixed it up, and drove it around our small town. A few weeks later a customer dropped by to look at a mare and said, "I'll buy the horse if you sell me that buggy."

He bought the horse and buggy, and I went and found another used carriage. While I was working on it, another guy came in for a horse and offered to buy that buggy. That's when I decided to set up a workshop so that I could build buggies from scratch. I watched old Western movies for inspiration. Three years later I was selling enough to quit GM and focus on my business full-time.

My company, Justin Carriage Works, now designs more than 20 types of horse-drawn vehicles. We sell about 120 a year, mostly through our website, buggy.com. Revenue hit $400,000 last year, and we're profitable. Prices range from $2,350 for a two-seater to $18,500 for a quail-hunting wagon, which features tiers of benches that allow folks to shoot without maiming each other. The bodies of our products are fiberglass or wood, and clients can customize them. They can choose the color of the interior and exterior, decide if they want brass or chrome accents, and if they want to, add a stereo.

About 70% of our customers use the carriages commercially, for city tours, funerals, and weddings. We've built three coaches for Disney, including one that carried Cinderella in a Disneyland parade. The other 30% of our clients buy buggies to decorate their yards or haul items on their farms.

My original intent wasn't to build carriages for other people, but to build one for myself. But I've never had the chance. I still don't own one.

If You Sell Links On Your Sites, Please Let Us Know

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