eCommerce and

Happy Halloween!

• Andy Beal reports on the Google AdWords changes that we should be seeing soon.  Interesting changes to say the least, and I love the fact that he referenced Saturday Night Live’s Weekend Update.
• Facebook is top choice for socially engaged retailers according to recent studies.
• A Harvard Professor is suing Google for typo-squatting, the practice of registering web sites addresses that are spelled similarly to the legitimate site but with small variances like an extra letter or a letter out of place.  Benjamin Edelman, the professor, alleges that Google is costing advertisers between $30-$50 million dollars per year.
• The economy is affecting all of us and hopefully we are all working for companies that are preparing for it.  If for some reason you’re not quite sure if the company you work for is heading in the right direction, you may want to look over this checklist.
• This story wasn’t from this week, but I just caught wind of it so I thought I would share.  Take a look at the decision set forth below and decide which of the two options you would choose to invest in:
  
  Innovation A enjoyed blockbuster first-year revenues of $200 million thanks to "a clear value proposition, clever positioning, and a strong distribution network."
  
  Innovation B, meanwhile, had on a muddled business model and generated only $220,000 during its first year.
  
  Most people would probably choose option A without considering the numerous other factors that should be taken into consideration.  This is the point that Scott Anthony is trying to get across in this article, because as it turns out option A was Vanilla Coke which was discontinued three years later, and option B was Google.  Google’s “muddled business model” was enormously successful once they settled on an ad-based business model.
  

This post is for the newbie’s who have compiled lots of good business reasons to take the easy route.  Let me explain.  Let’s say entrepreneur “John Doe” decides to launch a category level ecommerce company servicing a specific industry, say home improvement.  John is going to establish several partnerships along the way as he builds his business: Banking partnership, landlord partnerships, marketing partnerships, vendor partnerships, employee partnerships, etc.  We’ll use vendors in our illustration.  Let’s say John is plowing his way through various manufacturers, distributors, and wholesalers in his attempt to setup a vendor network.  Cold calls, conference calls, meetings, pleadings, and so forth.  In the midst of this effort a golden nugget appears.  The largest wholesaler in the country agrees to work with John.  Amazing!  A huge catalog, consolidated supply, good pricing, strong fulfillment, available electronic product data, everything!  John is ecstatic; he signs on, and drops his pursuit of “smaller” vendors.  John just sold his company for less than it is worth.

By entering a hugely unbalanced relationship John has forfeited all negotiating power when, in three years, his wonderful, global vendor decides to acquire or drop John.  John faces accepting their valuation, drastic downsizing while he goes back to the vendor setup process he abandoned three years ago, or closing his doors.  John took the quick and easy route for a handful of seemingly good reasons rather than putting in the time to build his negotiating position.  The quick, big dollars John saw were followed by a less than optimal transition, or forced exit.

Sometimes this conscious decision makes sense.  For example, when you’ve grown enough that the next level requires the participation of the biggest players.  However, early on, you’re likely better off applying some elbow grease to create some value.

Luckily, we were able to avoid the scenario John suffers above.  However, our banking relationship is an example of an unbalanced relationship that hasn’t gone as well for us.  Early on, we had the opportunity to engage small local banks, medium regional banks, or large national banks.  We went with the big boys.  Since then, our small fish in a big pond position has caused us to suffer in terms of customer service, flexibility, available tools and so forth.  If I had to do it over again I would have started with a medium size bank that we could grow with and eventually graduate from.  The scale of mutual value on both sides of the relationship would have been more equitable.  At this point the transition is more costly than the pain so we push on.  Thankfully, this relationship doesn’t have near the negative slant John’s vendor relationship had.

These days we’re becoming a bigger fish who can swim well in bigger ponds.  It may have been harder building our company without some of those big vendor perks but looking back it was the right decision.  We still own our company, both legally and practically.

So, watch out for those unbalanced relationships; you may be negotiating your valuation earlier than you think.  Don’t accidentally sell your business before you even get going.

It’s all about the silver lining…

If you’ve looked at the prices of homes lately, there are some great deals out there; a huge supply and little demand.  The same can be true in the employment market. When other companies are cutting jobs, many qualified people are out there hunting for employment.  Not to make light of a very sensitive subject, but the current employment rate’s 16 year low, can actually be a great opportunity for the growing small business. A huge supply and little demand of workers is a great chance to snag up a quality employee.  Not only will you get your pick, but you will be less likely to get caught in a bidding war, which most small businesses can’t afford to win.  You will have a better opportunity in this market to hire qualified employees, then when the competition for such employees is fiercer.

Shop on.

Several months ago, we, the staff of Gordian Project, set out to author a blog. Not that all of us immediately found the prospect as inviting as others, but we generally engage a team spirit; thus the eCommerce and Entrepreneurship Blog.

I understood the blog’s driving purpose to be sharing our personal experiences within our given area of discipline as it relates to all things eCommerce. After several months of participation, I thought I would review our blog.

Caveat: I’d never read a blog going into this project, nor had I any desire to. The actual thought of sitting around reading peoples random thoughts makes me feel a bit voyeuristic. After reading Wikipedia’s definition of voyeuristic, it certainly isn’t that. Still, to this day, I’ve had no desire to read blogs other than for the purpose of this review.

I’m not sure it counts as “reading” but the one key area I check out on our blog each month is the Authors section of the home page. The key here is to identify how many posts I have in relation to other staff. I’m not sure what about life turns everything into a competition. This post will launch me forward to eight posts, however, I know I’ve written a couple that haven’t yet made it past the cutting room floor so this number isn’t hard and fast. But going with eight puts me in a respectable position.

Vanessa’s an over achiever at 40, but in all fairness she administrates the blog. I doubt any of her posts have hit the cutting room floor. If light reading and interesting tidbits is your thing, Vanessa’s Variety for the Week delivers. She shares what’s going on around other blog spaces, here at the office, and perhaps her life more than any other contributor.

Matt is our Development Manager. We’re among the elders of the office so I’ve truly appreciated our friendship. I don’t read his posts. I don’t understand what he does beyond the fact that I know he can fix or improve just about any internal process. Any time I walk past his desk he has a monitor filled with gibberish. I simply figure I won’t understand his posts either. Nice picture of his son in his most recent post though.

You might also notice Zach has 11 posts as of today. I’d read his if you only have a few minutes each day. Scanning through his titles, (that counts as reading I don’t care what anyone says) I find his posts most on topic: They include Website Improvements: Test Basic Usability Before Advancing, Google Sitelinks: Capturing My Proverbial Moby Dick, and Google Search Engine Results Pages Illustrated.

As a partner of Gordian Project I have to say bang up job Brian! I particularly enjoyed your Soft Economy Priorities? Time to Paint Your Parking Spaces; that’s leadership.

I’d like to thank Josh for his most recent post, The iPhone 3G Saved My Life. It truly inspired me to write this post. All this time I’d banged my head against the desk trying to come up with another post showcasing the thrilling world of Supply Chain, when all I needed was an iPhone post. Below, the desk I bang my head on as taken with my iPhone.

Over time, you’ll notice that Elizabeth stopped contributing as often. I have mixed emotions on this one. Elizabeth so desired to be a mother and now she is enjoying that gift with her daughter, Kara, as a stay at home mom. Congratulations Liz! However, Elizabeth also worked in Supply Chain and guess what that means, I’ve had to cover Supply Chain blogging without her. Thanks Liz!

I’ve actually loved reading Ellen’s posts for the first time as I prepared for this post. Ellen has taken the reins of a department that everyone loves to hate, HR. She sifts through all the big issues like food programs and political sensitivity. What a fun department to be in. Blog post ideas just shoot across Ellen’s desk, I’m sure. Ellen also manages Accounts Payable but I’ve yet to see a post with any real hard numbers.

Ryan takes his job seriously. He’s building a career, a future. He’s a smart guy who understands this isn’t just a 9 to 5 but an opportunity for him to build a foundation for his future. He’s always learning and looking for how to add value to the company. His posts are read as a “Where’s Ryan?” I just hope he’s not building his resume based on Ryan’s Randomness for the Week of June 20th, 2008.

Tim, as partner, bang up job! Please don’t break your run on providing an image in every post. No one does it better than you.

Our blog was launched just prior to Simon’s moving on to launch his own business. Nice work getting in a post you can use as a business card.

Before you jump to any conclusions about why Emily posted her first and, to this day, last post May 19th 2008, I dare you to read it (Dealing with Difficult Customers: Best Practices for Addressing Customer Complaints). She is right now over there fighting the good fight. Without her and her team keeping those customers happy there’s no need for this eCommerce and Entrepreneurship blog.

And finally I’d like to say welcome to Arianna. She brings so much to the table: customer service experience, multilingual, eye for detail and now she’s a vital part of Supply Chain. FYI Arianna…I’m going to need at least one post a month.

So those are my “collective of experiences, thoughts, processes and updates from people that are not only actively working in ecommerce but are also zealous about the industry.”

Forecasting: A Basic Process for Stabbing in the Dark

Over the last few days I’ve spent some time polishing up our financial forecasts for some interested 3rd parties.  I’m a firm believer in the value of forecasting and planning from the very earliest stages of a venture.  I do all kinds of estimating, budgeting, and forecasting for many reasons.  Sometimes I need an accurate picture of where we are, sometimes I need a conservative picture of where we will likely be in the near term, sometimes I need and exciting picture of where we could be in the longer term.  In any case, the aggregate of the analysis helps provide me with a comprehensive understanding of our business, past, present, and future.  During the refresh process I decided it may be valuable to share some basic thoughts regarding forecasting for a small business.  Although there are very sophisticated methods available to “Engineer MBA’s”, there are some real basics that I think would be beneficial to someone just starting out, and pointed in the right direction.  After all, who really wants to get into linear regression?

In general, as you walk through the accounts in your profit and loss statement you will find that some accounts are what I will call “fixed and known”, at least in the near term.  These accounts may include things like monthly lease payments, general liability premiums, or your annual California LLC fees.  The rest of the accounts are things that are generally tied to a combination of historic reality and a forward looking strategic plan.

Start with the “Fixed and Known” 

I suggest tackling the more obvious “fixed and known” accounts first.  For example, if you’re in the highest LLC fee tier then the fee isn’t going to change until it’s finally ruled unconstitutional and goes away.  Then you get a big refund check, assuming you’ve filed the right paperwork, and you can go buy a Range Rover.  Anyway, knock those easy ones out first.  Careful though, even some of these “easy” ones may need a little extra thought...  If you’re sure your office space and lease terms will accommodate your planning horizon then plug in the number.  However, if you plan to grow or move within the period, you’ll need to estimate the new “fixed and known” lease payment numbers starting at that point.  If your office space use is very flexible you may even forecast based on headcount and a standard square footage per employee.  In any case, with a little thought and consideration of your future plans you’ll be able to knock these out fairly quickly. 

Forecasting the Unknowns 

On to the tougher ones!  The revenue forecast may be the most challenging and important forecast of all.  Many times other accounts are driven by the revenue forecast.  For example, if your margin is a steady 35%, your cost of goods sold will likely be forecast at 65% of revenue, assuming the absence of early payment discounts.  The revenue forecast should incorporate your historic performance as well as future plans.  You can look at simple sales dollars, customer acquisition, order generation, average ticket, market trends, growth rate when you did X vs. Y in the past, etc.  Hypothetically speaking you may say that in 2006 you focused on “product offering breath and depth” initiative which generated 35% growth in order count.  In 2009 you plan to focus on that initiative again, while also implementing an up-sell program to increase average order by 5%.  You can use these numbers, with a 2008 actual, to build a 2009 forecast.  Likewise, if your plan includes less sales growth focused initiatives in 2010 you may forecast less growth in that year. 

Performance, Present Condition and Future Plans 

This past performance, present condition, future plans thinking is the cycle you need to go through for each account.  Using transaction fees as an example… A) In the past our volume was lower and our rates were higher. B) Recently we had our rates reviewed and lowered based on our increased volume. C) Next year we plan to implement a payment service that carries a lower average rate than the services we offer today.  If you can estimate the percentage of transactions that will use the new service based on some past marker you can easily forecast the transaction fees through your planning horizon by applying the current rate to a portion of your revenue forecast and the new rate to the remainder of your revenue forecast.  How about 3rd party vendors that don’t have fixed contracts… A) How many seats with which vendors have you used at past revenue levels?  B) How many are you using at current revenue levels?  C) Do you plan to fundamentally change seats/revenue dollar in the future?  Maybe you exchange revenue levels with customer service rep count, which is based on a staffing plan pegged back to revenue.  In either case, revenue is driving its way through to give relative reference for A, B, C, and the forecast.

In this way you’ll go through each account: A, B, C, forecast.  Historic data, current actuals, and a strategic plan is all you need.  And, well, a spreadsheet.  Hope this provides some help and motivation to get started with your forecasting early!

Small, fast growing companies thrive off of nimble, entrepreneurial, growth infested staff at all levels.  The thought is that eventually, you will be able to fill from underneath, as the company grows-up and develops a strong upper management team.  But finding the turning point between hiring for ideas and hiring for tasks is challenging; and there is a point. 

The small business e-commerce entrepreneur must understand that even when hiring for entry level positions, it is better to hire the analytical ace then the taskmaster.   For example, just because someone might say they want to start their own company someday when interviewing for an entry level position, doesn’t mean they won’t be an excellent employee for the two years they do spend with your company, and by no means should it be an immediate turn off.  Yes they might leave in a year or two, but it is better to hire employees that can grow the company with their ideas and complete the tasks, then worker bees that complete the tasks but require additional management. 

The truth is that both the “taskmaster” and the “analytical ace” suffer turn over and it has just as much to do with the nature of the position as it does the nature of the employee.  Finding the tipping point when your company is huge enough, and I mean huge enough, to support worker bees is a fine science.  However, judging this pinnacle could make or break your growth and efficiency.  Especially in this down economy, when investments should be even more calculated and on target, it is better to invest in someone who can grow you, rather than save a few dollars on someone that can sustain you. 

I was having a hard time figuring out how to get in to this week’s variety, because this past week seems like a blur.  Lucky for me I checked my email and Amazon was gracious enough to send me an announcement about their newest feature, still in beta, UnSpun.  I thought this would be a good way to start out, I mean it’s not like they are the largest internet retailer in the world or anything.  Oh yeah and I didn’t want to be the umpteenth person to mention their second quarter profits doubled this year.  Oh wait, dang it I just did.

• Amazon announces UnSpun!  Yes Amazon has found another way to get shoppers involved in the purchasing process.  The feature is still in beta, but like I said above I got the email about it today.  "UnSpun by Amazon (unspun.amazon.com) allows you to find lists about anything where the community has voted and added items. UnSpun gives you the best, the worst, the funniest, the obvious, and the obscure.” as explained by the email.  My favorite part about it was that the "UnSpun  team" provided an antidote to explain how these lists are created.  "Recently, the UnSpun team got spun up debating the movies we were most ashamed to admit liking (view this list). Jonathan said Breakfast Club while Michael was all over Showgirls. An e-mail exchange gave way to heated conversations which eventually boiled over into Mark's impassioned defense of Warren Beatty's acting chops over that of Dustin Hoffman's. Red faces and bruised egos aside, we all learned a little more about one another, and a lot about movies we ought to buy (when nobody's looking, of course)."  This may be totally fabricated, but as a consumer I loved the personalization of it.  Maybe I am totally gullible but I felt like I got to see a little insight into the world of those working at Amazon, and it made me like them, more. 
• Consumers want to do their research online before making a purchase, whether that purchase is made in store or online, according to a study by Nielsen online.  This is great news for multi-channel retailers as the internet is driving offline sales. 
• Yahoo profits fell below expected Wall Street estimates in the second quarter, which was not too surprising.  What was surprising to me is that "Yahoo said that it incurred $22 million in costs stemming from 'advisors related to Microsoft's proposals to acquire all or part of the company'".  Who are these advisors?  That is a lot of money regardless of what company you are and especially given the outcome of their “advising”.  It gets better, listen to this Microsoft, to help address the 11% increase in Yahoo’s search service in the second quarter, Yahoo announced a partnership with Google.  According to the article "Yahoo recently announced a partnership with Google that will have Google fielding some queries made on Yahoo sites, to match them with advertisements and split any resulting revenue."  Read the full article here. 
• No wonder we pay over $100 for jeans now-a–days!  Retailers are taking dressing rooms to the next level, and it is quite unbelievable.  What I want to know is if it is actually necessary?  Are we really going to keep increasing the cost of our attire just to have some sort of 3-D scanners in the fitting room?  I mean, I love to shop but even I think we are getting lazy, and because of it retailers are having to strategize to accommodate our laziness.  According to the article retailers like Banana Republic are adding call buttons and delivery doors so that sales assistants can bring products to shoppers.  If you have ever shopped there, you know that they bug you enough as it is when you are trying things on.  I am already preparing myself for when I have to say "no I don’t need a piece of cheesecake and a cup of tea to enjoy while trying these clothes on".  While I am on this rant I want to address the fact that we are becoming a society of those that cannot think or make decisions on their own.  I love product reviews I read them when I am making online purchases.  I also like to know my friend's opinions about my outfits (sometimes).  But are we so dependent on what others think that we need "an interactive mirror and webcam" in the dressing room so that we can include friends and family in on our shopping experience?  If your friends and family have that much time on their hands, more power to you. 
• If you follow Gary Weiss at all you know how he feels about Overstock.com’s CEO Patrick Byrne.  If not, he refers to the company in this post as his favorite "corporate sleaze poster child".  Overstock.com reported its second quarter earnings last Friday which caused the stock to drop by more than 41%.  If you read the Q2 2008 Earnings Call Transcript it may become clear why the company’s earnings didn’t measure up.  This blog has taken the liberty of capturing a few key highlights of the transcript for you, and it doesn’t bode well for Byrne.
  

Regardless of political affiliation, in times of economic uncertainty, governments traditionally become more involved; i.e. more legislation, rulemaking, enforcement, and influence.  The situation today is without exception.  At the same time Federal Reserve Chairman Ben Bernanke finally orated “recession”, various departments at various levels of government increased their involvement in the economy.  Multi level policy making not only means that various levels of government will act, but their actions will affect multiple levels of society.  Realizing Bernanke is known best for his research on inflation and the Great Depression, leaves little surprise that the Federal Reserve bailed out Bear Stearns.  Similarly, with the ferocious presidential contest of only Senators that has engaged even the traditionally uninvolved lower socio-economical and vulnerable members of society, it seems timely that Congress is now working with the mortgage lenders on loan forgiveness instead of foreclosure as a cost savings strategy.  These policies coordinate to create an economic stimulus by reducing the individual burden of market participants. 

Senator Ed Kennedy has vowed to call a vote on the Healthy Families Act soon that would allow “7 days of sick leave with pay annually for employees working 30 or more hours per week; or a pro rata number of days or hours of sick leave with pay annually for employees working less than--(A) 30 hours per week on a year-round basis; or (B) 1,500 hours throughout the year involved.”.  On the campaign trail, both Democratic frontrunners Hilary Clinton and Barack Obama express support for mandatory sick days.  This is not officially labeled as part of any of the candidate’s economic stimulus plan, if there is one, but it does have characteristics of a stimulus.  This legislation would give sick days to part time employees, and lower level employees which are not currently entitled to paid sick days.  It creates happier, more productive lower level employees, in an economically stressful time requiring increased efficiency.  For a single mother of two working two part-time jobs, paid sick days could be the difference between eviction and a healthy family.  

Some question the rationale behind mandating employers to implement costly benefits in a recessional time of cutbacks, slimming margins, and dwindling profits.  These situations leave this legislation ferociously unpopular in the small business community, but it is worth another look; you might actually see it has some positives.  Employee rights are a tool in the government’s artillery to create economic stability and consumer confidence; a tool that an individual small business owner cannot brandish with the same far reaching impact. In fact, if one small business owner decided to implement paid sick days in a recession, they would be forced to raise prices to cover costs.  However, without the competitor’s participation, the small-business-owner-with-the-paid-sick-days will be dominated by their competition, and might even be pushed out of the market completely.  In all actuality, the negative effects of rising costs related to mandated employee benefits are minimal.  Business owners would be forced to raise prices together and pass on increased costs elsewhere, thereby decreasing the burden to individual businesses.  Meanwhile, the small business owner will benefit from the well-known positive impacts of employee benefits, while not having to shoulder the burden alone.  Governments have the supremacy to equally mandate improvements to the bottom rung employees, and produce far reaching positive economic impacts. 

A few months ago eBay implemented Best Match search as their default search.  What this means is that visibility of your listings may be reduced, based on your feedback ratings.  There was a lot of buzz about the situation because sellers that had just under perfect feedback ratings were being pushed down in search results.  In a matter of days sellers started seeing sales drop, and drop quickly.  One blogger posted that sales decreased by 40% after best match was implemented.  Our eBay store was also affected by this and saw performance changes.  

The frustrating part was that eBay wasn’t providing sellers with the information they needed to improve their ratings and status in search results.  As a seller with 99.2% positive feedback I didn’t think that we would be in danger of losing search rankings because of best match.  The thing is that eBay only uses the last 90 days of a stores feedback ratings when using best match, so although overall ratings were above the 99% that they needed to be at, the couple negative and neutral (neutral also counts as negative) ratings over the last 90 days were not offset by positive ratings and therefore we weren’t included when eBay used best match.  The only way that I was able to figure this out was to contact our eBay account manager!  There was nothing in our seller dashboard that gave this information.  Sellers could get this information by going to Toolhaus.org, so obviously the information was available somewhere; eBay just wasn’t giving users the ability to see it without scouring the web.  As a seller how could we determine if or what we wanted to list on eBay without the proper tools, at least if we know we are going to be pushed down in the result set we can choose to not list items that we know won’t perform well.  If we aren’t going to show up in result sets then what would be the point.  Our account manager is helpful, but it is nice to see that eBay is finally putting this information in front of the users in a simple manner via the Seller Dashboard.

eBay has been gradually adding to the seller dashboard over the last few months but today was the first time that I saw a comprehensive set of the information needed to improve the search standing and buyer satisfaction of our eBay store.  I guess better late than never.

Take a look at this week’s recap in eCommerce.

• The Microsoft and Yahoo deal has floundered, but Microsoft has a plan B.  Plan B includes making the case that search advertising is overrated and that display advertising is the wave of the future.
• Earn more than $3000 a month in Paypal Payments?  Find out how you can save money here. 
• eCommerce gurus are gracious enough to give tips to the rest of us about how to deal with information overflow. 
• On May 15th 2008 say goodbye to “Hello”. 
• While the Lakers may be smashing the Utah Jazz in the NBA playoffs, Carlos Boozer has other reasons to celebrate.  Overstock.com just signed the NBA All-Star to a four year public relations campaign.