Sunday, August 15, 2010
Daily Thoughts 8/15/2010
I am reading How To Write A Business Plan, 9th Edition. I like what he calls business money forecasts SWAG (scientific wild ass guesses) please excuse the language. I am reading the material on cash flow and forecasting and it is starting to make some sense. I am used to the idea of Ebay, you have something to sell you put it up on a website, someone bids on it, ebay takes a small percentage, and you get the check or payment when the material is sent to you.
If you are a used bookseller it is also fairly straightforward. You buy a used book for 10-20% of the cost of the book which you are going to sell it at. The used bookseller goes to a garage sale, a library book sale, a church rummage sale, or gets someone who wanders in with some books. They might also go to an auction or advertise for people to bring in books. They buy the books then they sell it. If they sell online in addition to the store, they might use ABE (Advanced Book Exchange ) and pay a flat fee to have thousands of books listed. If they find something particularly interesting they might sell it on Ebay or in a special catalog with a higher price and a little bit of advertising.
Most business plan books don't describe online businesses that well. A lot of the selling online is dropshipped from the manufacturer, or is a downloadable file. The manufacturer is giving the business person a percentage of the value of the merchandise in exchange for marketing their item, doing customer service, and selling the item. They do not charge you that much to list the item. If you are using affiliates it can be pretty low, a commission of 4% of the price of the book from Amazon. This means there has to be a relationship with a distributor of goods if you are going to make any money. There are three which stand out for books, Ingram, Baker and Taylor, and Book Wholesalers Inc. It is not hard to figure out.
I like the description of the consultants office costing $30,000 in How To Write A Business Plan. What single person office nowadays is going to pay $2000 for a copy machine, $1000 for a fax machine, or $1000 for a telephone system. It seemed a little absurd. I am thinking of what it must look like for people building small internet sites. They are probably sitting in a corner office with a printer, a phone, and a desktop computer on a big desk. They might have an office chair and a few bookshelves, but most likely it is very bare bones.
I remember a description of Amazon when it was first starting. The desks were doors on top of chairs with a computer on top of that. I also wonder what garage offices look like for many startups. They probably aren't that pretty. There probably are pizza boxes and diet coke.