Magazines Love the Green

Following my “Go Green, Get Green” post, I started recognizing a trend in the business press…

Fortune April 2007	Business 2.0 February 2007	Businessweek January 29th, 2007.

Pretty Interesting stuff. Seems like the environment and social consciousness is finally starting to be looked at as something that will make money instead of costing money!

Import, Invent or Distribute?

In an effort to narrow down my product choices, I’ve been trying to decide whether it is better to Invent, Import or Distribute a product. There pro’s and con’s to inventing, importing and distributing. I’d like to explore each and how the rules factor into the decision.

Import:
Import would mean finding some product from another country to bring to the USA and create a market for.

Pros:

• It would seem fairly easy to find something that isn’t already available in the USA.
• No need for R&D.
• Manufacturing would already be handled by another entity.

Cons:

• The weak dollar limits the number of countries available for favorable terms. Basically some parts of Asia and Latin America seem to be my main options.
• If your exclusive supplier is unreliable, the business will operate entirely at the whim of another entity. In order to have any clout, or safety, I’d have to be ordering quite a bit of product at once.
• Shipping adds costs and delays.

Invent:
Inventing means coming up with a new idea, finding someone to design it, engineer it and manufacture it.

Pros:

• Your idea means that there may be limited competition for it once the product is ready to come to market
• If the idea is somewhat radical, my marketing can decide what the most advantageous price point is. In this experiment, I really want to keep the number of transactions to a minimum with high margins on each transaction as that will be easier to manage.

Cons:

• Could cost $25,000 or more just to patent if Iwanted true protection.
• Will be difficult to follow the rules while having the product designed and manufactured.
• Costs for outsourcing design and manufacturing could be very high.

Distribute:
I would define distribution as taking a product that already exists that may or may not be well known and getting a wholesale agreement to resell the product(s). This is what Amazon.com, newegg.com, etc. do.

Pros:

• No need for R&D.
• No need for manufacturing – The game basically becomes marketing and logistics.
• Probably will be easier to find US-based wholesalers to buy from, making it easier to streamline the logistics and save money on shipping.

Cons:

• If I’m selling a brand-name product that is the same as the one you can get at BestBuy.com, it is easy to become a commodity-type business, which goes against my current desires for a product.
• It takes time to find and build relationships with wholesalers.

 It would appear that I haven’t really decided either way just yet. There are pro’s and con’s to each approach. As of right now, my product summary doesn’t change. I will continue to think about how to narrow down my product.

Current Product Selection Summary:
My thinking is now being directed towards locating a tangible product for women possessing properties that would allow it to be marketed as expensive, luxurious and/or exclusive. This product should also be constructed of environmentally sound materials, allowing ”go green“ to be an additional focal point of the brand.

What to sell… Maybe eBayers have insight?

I had a little free time this weekend so I decided to check out eBay to look at expired auctions and what is hot. It looks like recently they changed this information to subscription only at a cost of $2.99 for 24 hours. I opted not to pay for purusing at this point.

I then headed over to their forums to look at what the sellers were saying about the state of the ebay market place. I’d heard of the concept of “drop shipping” from various sources and I wanted to see if maybe existing sellers were using the technique with any degree of success.

Ultimately I stumbled upon this discussion:

http://forums.ebay.com/db1/thread.jspa?threadID=1000209529&start=0

Reading through it looks like there are quite a few scams going on, but here are the pros and cons that I can deduce, some are common sense others are from research:

Pros:

• Low startup costs
• No need to pre-purchase inventory – pay as you go
• No need to find someone to handle the logistics of storage or delivery

Cons:

• Scam factor
• You are at the whim of the dropshipper’s inventory and communication protocols
• More middle men to take a slice of the pie.
• The prices actually don’t seem that great. For example, I found an iPod at one of the sites for $359.50 while the same iPod is $349.99 at my local Best Buy.

It looks like the only way they were making money is by going to garage sales and buying people’s stuff then reselling it on eBay. This is a time-intensive task!

I got a general feeling that in order to sell anything you have to purchase a decent quantity of your product(s) to get a respectable wholesale price. Another concern I would have is that the amount of time it takes to manage the dropshipping vendor will be deceptive. You may be able to automate some of it, but I didn’t get a feeling that the entire supply-chain process is easily automated.

While it is the easy way to start, long term I feel there are too many weaknesses in the drop-shipping model. I will have to find another source for my product.

Go Green, Get Green

About a year ago I bought new bedroom furniture. Instead of looking at local furniture stores, I went to the Internet and searched for it. One of the first things that came up was a company called Green Culture with their slogan “Products for an Enlightened Planet.” I looked around and found a couple I liked, finally deciding on the furniture shown below:

I like the look and was also sold on the fact that I was also doing good for the world so I paid my $3,000 + shipping for a set. While I’m not a fanatic environmentalist, I think these days given the choice most would choose to help if they knew they were doing it, and it didn’t inconvenience them.

Recently I needed a new dining room table, so this time I went shopping at my local Levitz Superstore. While browsing around, I noticed they had the same bedroom furniture with a slightly different bed frame:

When I looked at the price tag of the Levitz version, it was a bit disconcerting! What seemed to be the same product was on sale for $999.99 for the set! A year ago I paid $3,000.

The strangest part is that I really don’t feel all that ripped off. The “help your planet by buying farmed wood products” messaging must have worked on me. Besides, saving the environment is the cool thing to do these days. It’s probably the only subject that can take someone as bland and boring as Al Gore and turn him into a superstar, Academy Award and all. It’s also allowed Whole Foods to reach stellar success by building a nationwide chain that focuses on what’s good for you and your planet.

Once again, using my common sense approach it would seem prudent to add “going green” to my product selection criteria. It is a growing “hot button” among many Americans and it is something that has historically allowed companies to charge more for their goods and services than their not-green counterparts. Good for the the environment and business? Sounds like a win-win. Go green, get green.

Current Product Selection Summary:
My thinking is now being directed towards locating a tangible product for women possessing properties that would allow it to be marketed as expensive, luxurious and/or exclusive. This product should also be constructed of environmentally sound materials, allowing ”go green“ to be an additional focal point of the brand.

Men or Women: Which Makes a Better Target Market?

An interesting article was published in the March 12th issue of BusinessWeek entitled “Gender Gap A Tale of Two Inflations.” The article requires you to sign up with BusinessWeek, so here are a few key points if you don’t want to bother:

• The price of goods women buy over the past 18 months has grown 3.6% while goods that men typically buy has only grown 0.2%. This represents a significant gap!
• Single women spend a higher percentage of income than single men do, and women are staying single longer than ever before.
• Women spend more on themselves than men do.

The unknown that would make a huge difference for profitability of a venture is whether or not the costs for production and marketing are rising faster for women than men. My hunch is no, but sometimes just getting one piece of the puzzle can be very misleading.

Taking my common sense approach to finding my idea, I think I’ll focus on women. Besides the data that says they are willing to spend more on themselves, as a man I don’t know much about things that women regularly spend money on. I know they like shoes and bags and jewelry, etc. But to come up with a good idea, validate it, market it and deliver it in a way that resonates with the female population? That basically means I will either need to start studying real hard, which of course takes time, or I’m forced to follow rule #2 and #3.

Current Product Selection Summary:
My thinking is now being directed towards locating a tangible product for women possessing properties that would allow it to be marketed as expensive, luxurious and/or exclusive.

Product, Service or Hybrid… Hmm…

So I’ve reasoned that makes more sense to sell a high-margin product, which probably means a combination of expensive, exclusive and/or luxurious.

In an attempt to narrow down the possibilities further, let’s explore whether or not a product, a service or a hybrid offering (selling a product with services on top) makes the most sense.

A Service?
My initial hunch is that selling services requires someone to either deliver services themselves or manage the delivery of service. Starting out, this isn’t something I can afford to do from a time or money perspective. With service based businesses, your inventory is measured in man-hours available for sale meaning that if you are selling design services, you have to hire someone to deliver the design and manage the project. That someone has an upper limit of around 1700 hours/year per full-time employee.

Maybe I can develop a web site that matches service providers with customers, which is aways a possibility. The downside is that there are plenty of sites out there already doing this quite well.

A Hybrid?
The hybrid concept is not a possibility. My business would have to sell a product then manage the delivery of services. This is done quite a bit in enterprise software. First companies will buy the software, then they’ll buy customization and a maintenance contract. This is harder to do without matching up service providers, unless of course the product was something can be used with an existing industry’s service offering.

A lame example: a new hammer that has a site listing current handy men trained on how to use this special hammer. The issue here is that if it is really that special, someone may have to train new handy men on this whiz-bang new hammer, then the public would have to be educated on why they should demand this new hammer from their handy men. Sounds like a lot of work! Generally this is fine and expected of a new venture, but my rules won’t allow me to effectively pay for and manage such things.

A Product? 
Finding a product to sell seems like the most sense. The various aspects of developing and delivering the product can be outsourced. Selling a product can easily be purely transactional, as long as the product is simple and easy to use and/or appreciate (a pet rock for example!)

Summary:
I think it is safe to say I can start narrowing down my thinking to a tangible product possessing properties that would allow it to be marketed as luxurious and exclusive.

Market Selection Through Buffettology

Warren Buffet of Berkshire Hathaway is widely regarded as the world’s most successful investor. He has turned investor’s seed money of $105,000 into over $40 billion during the course of his lifetime by using a method referred to ”value investing.” Mary Buffett, the Warren’s daughter, explained his methods for investing in her book titled “The New Buffettology.”

Mary explains that the core of Buffett’s strategy is based on finding a company that holds a durable competitive advantage and/or ridiculously high inventory turnover. A durable competitive advantage is something like a patent, brand equity, simple product, etc. that allows a company to maintain high profit margins. Such companies have low fixed costs and low R&D costs. They create a product and that product is able to remain the same without much change over many years. Coca-Cola can do this, pharmaceuticals can’t.

Warren Buffet has made more money than any human being, save Bill Gates, by simply looking for and purchasing companies that posses a durable competitive advantage (while on sale during a bear market of course). If he’s lucky, these companies will also offer high inventory turnover, which makes for very, very attractive long-term profits.

If I am to create a successful business by selling a tangible product (not that I need to sell a product, but I may as well entertain the idea) that requires neither my time nor my money I suspect whatever I sell should have a durable competitive advantage of some sort. My product will need to have high margins and the way to do that is through creating an air of exclusivity.

The real difference between a Bic pen and a Mont Blanc is some metal around it. At the core, the two devices are meant to do one thing, offer a tool for transferring thoughts to paper. However, a Bic costs 30 cents. Mont Blanc “Writing Instruments” will cost you into the hundreds. Does it cost that much more to manufacture a Mont Blanc? Probably not. But the brand is designed around exclusivity and luxury.

Bic competes on costs, making it a commodity price-oriented product with very low margins. The problem with competing on price is that gaining a competitive edge means making less money, or another way of looking at it is over time you’ll need to be doing the more work to maintain the same income. Mont Blanc competes on emotion, meaning price has nothing to do with it. That gives Mont Blanc the scent of a durable competitive advantage.

For me, I think its safe to say that I prefer the opportunity to come up with an idea for a luxurious product to a commodity product. I’d even go so far as to say I cannot sell a commodity product if I wanted to becuase I will most likely be charged a per-transaction fee by the vendors who handle the logistics side of orders. This will eat into a commodity product’s already non-existent profit margins, making it much harder to reach my goals.