We have a tendency to think of all digital or technology- based business practices as “new.”
Obviously successful online businesses are really good at making money online. And certainly you might want to consider pursuing adding making money online to your business model. But even if you don’t – taking a second look at various revenue models used by online businesses may just help you brainstorm additional revenue models that make sense for your small business.
What may surprise you is that some of these models may be models you’ve overlooked. With the advent of the Internet and online businesses, many brick and mortar types may have forgotten that online businesses adapted successful brick and mortar revenue models to the web.
Let’s take a look at a couple of examples of how they did that:
This online model is extremely popular – and can be extremely profitable, especially for websites with high rates of traffic. With this model the owner of the website charges to put up some form of advertising on their website. The charge can be one time fixed, cost per impression (how many times the ad is viewed), or cost per click (meaning the person viewing the ad clicks a link to the company doing the advertising.)
Outside of selling ads on your company website, newsletter, or blog, how might your business adapt the advertising model?
Well, you might consider selling banner type ad space on walls within your small business to related or non-compete businesses of interest to your target customers or clients. You might immediately think “tacky” – but this can be done with levels of finesse customized to your business type as you control the criteria as to graphics and content. Or you might sell space somewhere in your store or office where complimentary businesses can display brochures.
The online the affiliate model looks like this: a viewer clicks on a link, travels to the site of a different company, and makes a purchase. The website that hosted the link is paid a certain amount per purchase.
Again, this may seem a completely new innovation owing everything to the Internet. But it does sound vaguely familiar – that’s right, it sounds extremely similar to a brick and mortar consignment model where small businesses allot space for outside products and receive a percentage of all sales. It also sounds a bit like a fee based referral model where one is paid either per referral or via a percentage when that referral results in a sale.
Brick and mortar small business owners reading this might be feeling a bit vindicated about now. After all, the Internet can sometimes make us feel like the “poor relative” of online small business. It feels good to be reminded of what really is the obvious: the online small business sector was built on the foundation of brick and mortar best practices.
But don’t get too comfortable. The online small business sector is exceptionally adept applying two, incredibly important characteristics to their approach. Characteristics that every brick and mortar small business owner should emulate: Creativity and Innovation.
Instead of relegating certain models as “online” and others “off line” – every small business owner benefits by creatively integrating the best of both worlds into their business models.
On July 16, 2012 the world lost a great, yet humble man willing to share seven profoundly elegant habits that we can all develop to promote living highly effective lives. He captures these habits in his well-known book “The Seven Habits of Highly Effective People.”
Countless small business owners can credit these habits for creating not only successful businesses, but meaningful, fulfilled lives. Many of you have certainly read his books and certainly there will be future generations influenced by the legacy of his thinking.
While his book emphasizes personal development, his influence on building more “humanized” cultures within business, including small business, cannot be underestimated. One can live a full, purposeful, meaningful personal life fully integrated into their working lives and business success.
Central to Covey’s thinking is the notion that the seven habits are “habits of effectiveness” and that these habits are based on principles – natural, universally applicable “laws.”
It seems right to celebrate Covey’s legacy by taking a moment to re-visit, and perhaps re-commit, to his seven habits.
Covey’s seven habits address three areas within what he calls “The Seven Habit Paradigm.”
Independence or Self-Mastery
Covey centers the first three habits to be those supporting moving from a state of dependence to a state of independence which he describes as “self-mastery.” Self-mastery is a “private victory.”
Habit #1: Be Proactive
For Covey being proactive means taking responsibility for the decisions and choices we make any consequences that may be the result of those choices. Covey felt that we are responsible for our own lives because, as human beings, we have the opportunity to make choices.
Habit #2: Begin with the End in Mind
Covey advises us to live our lives literally by beginning any task, or working to achieve any goal, with the end in mind. He felt that “everything is created twice.” The first creation was a “mental” creation and the second a “physical” creation. When we begin with the end in mind we have a clear vision that acts to provide direction. When we don’t begin with the end in mind, we end up living our lives by “default” rather than by “design.”
Habit # 3: Put First Things First
This habit represents the “physical” creation. Covey states that this habit is the “actualization”, making real, of the first two habits. He calls this habit the “moment by moment doing it.”
When we put first things first we use principles rather than circumstances to prioritize. This habit allows us to develop the perseverance and discipline to do something “when you don’t want to do it” rather than allow unregulated, unprincipled desires to rule the day.
Interdependence is dependent upon the personal victory of independence. You cannot find effective, purposeful, and meaningful success with others until you first establish the same in relationship with yourself. These next three habits create successful interdependence with others.
Habit # 4: Think Win-Win
When we develop the habit of thinking win-win when dealing with others we are apt to create agreements and solutions to problems that everyone involved is comfortable with, feels good about, and is more likely to commit to. As Covey states win-win isn’t “your way or my way; it’s a better way.”
Habit # 5: Seek First to Understand, Then to be Understood
Highly effective people have developed the habit of listening empathically – meaning truly listening to what the other is saying with a sincere attempt to see things from their perspective rather than imposing your perspective and experience on the other person. Practicing this habit creates more caring, respectful relationships and engenders positive problem solving.
Habit # 6: Synergize
This habit allows us to see value within our differences in our relationship with others and makes it possible for us to learn from others. When we synergize we also recognize the strengths of others. Through synergy with others we can create powerful, positive teams that can get done what we cannot do alone. The habit to synergize the different strengths, opinions, and perspectives of others engenders an atmosphere where the people we live, work, and play with are encouraged to be the best they can be. Synergy is the foundation for positive leadership.
Covey says self-renewal “makes all the others (habits) possible.” The principles of balanced self-renewal are about “preserving and enhancing the greatest asset you have – you.”
Habit # 7: Sharpen the Saw
“Sharpening the saw” requires balancing and renewing the personal aspects of our lives for the purpose of creating life-long effective living. Sharpening the saw doesn’t only mean paying attention to re-newing and sustaining our physical health. In order to live balanced lives we must also renew and recharge ourselves spiritually (not necessarily religiously based) as well as mentally.
Small business owners certainly want to run highly effective businesses, Covey’s seven habits integrates that goal into a balanced, synergistic, purposeful, and meaningful life based on principles and driven by values.
You arrive exactly fifteen minutes ahead of time. You’ve got your best business attire on and your best foot forward as you approach the receptionist’s desk. You briefly halt for a millisecond, take a deep breath, and then announce to the smiling young woman before you that you’re here for your interview. Welcomed, and then instructed to take a seat, she informs you that it will be another fifteen minutes or so. Yup, fifteen more minutes to sweat it out while you do your best to appear calm. Fifteen more minutes to anticipate what questions you’ll be asked, what answers you’ll provide.
Most any small business owner would tell you no longer have to endure the interview process is a great benefit of being their own boss. The thought of never having to face another interview may certainly be a relief – but it is also most usually a myth. The table has been turned, but the small business owner is now sitting at the head of the table. Being “your own boss” most often turns out to mean “being the boss” and, unless a perpetual sole proprietor, this means interviewing applicants.
You may have already conducted numerous interviews, or looking forward (or not) to conducting your first interview. Strangely enough, it is likely you might experience similar feelings about being the interviewer as you did as an interviewee. But you did your homework back then and know preparing for the interview is just as, if not more, important than the interview itself. The same thing is true for the small business owner – preparation is key.
Integral to preparing to conduct an interview is an understanding from the perspective of the employer interview techniques and how to adapt them to the needs of your small business.
There are two main interview techniques:
Situational Interview: What would you do…?
The situational interview technique involves providing hypothetical situations to the applicant. The purpose of this technique is to discover how an interviewee would respond to situations involving some type of conflict or problem.
While the situation you provide is be hypothetical to the applicant, this is also an opportunity to describe real situations that have occurred, or could occur at your business. This is very powerful way to determine whether or not the applicant has the types of skills – whether “hard” (i.e. technical or knowledge-based) or “soft” (i.e. people, analytical, management skills) – necessary for the specific position you are looking to hire.
Behavioral Interview: What did you do…?
While the situational interview technique provides a look into how an applicant might respond in future or imagined situations, the behavioral technique involves garnering information as to how the applicant has responded to real situations that occurred in their past.
Asking an applicant how they behaved in the past is a technique to access how they are likely to respond to a similar situation in the future.
How to Conduct an Interview Specific to the Needs of Your Small Business
While these two techniques are different from each other in that one provides information about future events (situational) and the other past events (behavioral) they are most effective when used in conjunction with each other.
Remember that the goal of the interview is to not only determine whether or not the applicant meets the specific criteria necessary for the position, but also which applicant is the best fit for the position. This means that part of doing your “homework” preparing the interview is to identify and design questions around the specific competencies and skill sets the position demands. This does not eliminate hiring applicants who are fresh graduates or with no direct experience within your particular business type. Questions can include examples of the skills and competencies required demonstrated within the applicant’s personal experience (i.e. at school or as a volunteer) as well as previous work experience.
An effective way a small business owner can approach designing both situational and behavioral questions is to first identify and list the specific competencies and skills the position requires. Again, both hard and soft skills should be included. Once identified, the owner can then devise situational and behavioral questions to be asked at the time of the interview. This method is very helpful as it makes it more difficult for the applicant to provide “canned” responses to “canned” questions.
View our press release that appeared in many publications, including the San Francisco Chronicle.
A Different Kind of Bid
As a small business owner you’ve probably prepared many bids – or reviewed quite a few in the course of doing business.
This article isn’t about that kind of bid – it’s about a completely different way your business might – or might not – want to bid.
What we’re talking is a type of public-private partnership called a Business Improvement District – commonly referred to as a BID.
A BID is put together for the very purpose its name describes – to improve business. Specifically, a BID is designed to improve business in within a specified area. In this case property owners and business owners get together and agree to do something pretty phenomenal – charge themselves a fee (in the form of an assessment) and then work collectively to improve the neighborhood they do business in.
What a BID is Modeled After
In many respects a BID operates the same way a shopping mall does. Someone owns the property and then rents or leases retail space to individual business owners. Within the mall are common areas. Each individual business pays a fee which covers maintenance of the common area, pay for enhancements in the common areas to keep them attractive to customers, as well as cooperative advertising and activities promoting the mall and the individual stores it houses.
You can think of the stores in a BID district as the retail tenants at the mall. The common areas are the neighborhood (defined geographical area) that included in the BID. Similar to the arrangement between property owner and retail stores in the mall, businesses in the BID are assessed a fee – but in a BID the property owners are also assessed a fee. Again, similar to our mall example, these funds are used for maintenance, enhancement, and collective promotional activities.
Not a Tax
Some small business owners mistakenly think that BID represents a tax because it is collected by the city (or country.) However, as we all know, too often taxes are collected for one purpose by the government and then used for another. We also don’t directly manage or administrate funds collected via taxes. BID assessments are handled differently. The government collects the assessments, but that money is returned to BID managers to be used in the district.
A BID is also sometimes confused with a Merchant Association. However, there are major differences. The main difference is that the fees charged by a Merchant Association are voluntary. While a BID district is initially a voluntary collaborative between property and business owners, once it has been approved, the assessments become mandatory.
Paying mandatory BID assessment fees may seem to be a bad idea, but the upside is that, unlike a Merchant Association, BID districts have predictable and sustainable funding to provide services.
In order for a BID district to be formed it must be approved and, because it is a mandatory commitment once approved, most cities have prescribed strict processes for forming a BID. The highest priority that must be met is for there to be widespread support among both property owners as well as business in the area to be served.
Forming a BID isn’t overly complex, but there are many requirements that must be met. In general, there are three main steps for forming a bid:
If you think that forming a BID would benefit your business and your neighborhood, contact your city for further information.
Of course, don’t hesitate to pass our information along to anyone within your BID district if they need working capital.
Dr. McCoy, the well-loved character from the original Star Trek series, is famous for always reminding Captain Kirk, “Damn it Jim, I’m a doctor, not a (fill in the blank)!” whenever asked to perform outside his area of expertise.
Perhaps you’re a small business owner out there who has similar feelings when it comes to interpreting the economy. After all, just because you’re a small business owner doesn’t make you an economist. The fact is that small business owners as a group have a wide range of understanding – or not understanding – about economic indicators.
More important is that even a basic understanding of small business economics can be what makes or breaks a business. For instance, while most of us recognize indicators such as the Gross National Product or Consumer Price Index, you might not be aware that there are three types of economic indicators which are used for different purposes.
Leading: Used to try to most accurately predict future activity. There are ten indicators economists use as predictors of the economy. However, they are short-term predictors meaning they are used to predict the next 6-9 months or so. For example, the number of housing starts in a particular quarter is a leading economic indicator. However, most of us are most familiar with using how the stock market performs as a leading indicator – which can be misleading as company earnings estimates can be wrong, as well as the fact the stock market can be manipulated.
Lagging: Information regarding the economy that happened in the past. Economists use lagging indicators to confirm economic trends. The lagging indicator we are most familiar with, especially today, is the unemployment rate. Generally speaking, even during healthy economic times the unemployment rate will run between 3-5% or so due to things such as employee turnover. However, higher rates of unemployment indicate consumers have less money to spend which can translate into a slower economic growth.
Coincident: This is an indicator that “moves” with the economy. It is used to describe the current state of the economy. Personal income is a coincident economic indicator often used to describe the current status of the economy.
In summary, coincident economic indicators let us know where we are at now; leading economic indicators give us an idea of where we might be headed; while lagging indicators let us know what happened in the past and are helpful for confirming economic trends.
The different types of economic indicators just happen to mirror exactly what a small business owner needs to know in order to both protect and grow their business. A small business owner needs to understand the current status of their business, get an idea of where their business might be headed, as well as confirm trends within their business.
While there are many different economic indicators, most small business owners will want to keep abreast of the following:
Gross Domestic Product (GDP) This is a lagging economic indicator that measures the value of all goods and services produced in the country during a specific period (usually quarterly.) When the GDP increases the economy is considered growing – but big increases in GDP can cause inflation. If so, the Fed will usually increase interest rates to slow that growth down. Conversely, if the GDP shows little increase, this indicates the economy might be slowing down and can cause interest rates to be lowered in an attempt to stimulate the economy.
Consumer Price Index (CPI) This is a lagging economic indicator that indicates changes in the cost of living. When the cost of living increases this is also called inflation. If inflation increases at a rate consumers can’t keep up with the value of the dollar can diminish. But inflation isn’t all bad – moderate inflation can actually stimulate investment and, because it keeps interest rates at a healthy level, it encourages lending – both of which can be beneficial conditions for small business owners.
Producer Price Index (PPI) This is a lagging economic indicator and measures the prices producers and manufacturers must pay for materials. PPI and CPI are closely related as an increase in CPI can easily be predicted when following PPI. Any rise in PPI helps a small business owner take a close look at whether or not they will need to raise their prices.
Current Employment Statistics (CES) CES is a lagging economic indicator. Most small business owners understand the negative impact of high unemployment rates on the economy and their business. However, changes in wages should also be monitored as higher wages indicate an increase in the cost of labor and inflation in general. On the other hand, lower wages can indicate the economy is slowing down and business owners may consider cutting back on inventory and focusing on cutting costs via greater efficiency.
Although economics often seems to make as much sense as rocket science to a first grader – it doesn’t mean small business owners can’t educate themselves with enough basic information to assist in making good business decisions as well as create appropriate business strategies within particular economic conditions.
The landscape has changed when it comes to marketing to your audience. No longer will sending mailers be enough for some businesses. Depending on your target, it may be time to re-think your strategy. Consider your audience when doing so – the elderly are less likely to respond to e-marketing than 20-year-olds, for example. If you have the resources, try a multi-pronged approach and see what works.
The best thing about e-marketing is that it’s inexpensive compared to direct mail. Once you have your contact list, the message you want to send and a program with which to send it, you’re pretty much on your way.
When coming up with an e-mailing list, pay close attention to the CAN-SPAM laws. In short, if you weren’t given permission to send them something, don’t do it. So, how are you going to e-market to people who don’t know you exist yet? Isn’t that the point? That is a hard challenge for businesses that are e-marketing. Contact forms on your website and capturing e-mails at special events are a couple of ways to do it, and offering an incentive is a good way to go.
There are e-mail lists you can purchase, but this is a slippery slope. You have no idea if the list is reliable or gathered legally. If you do go this route, do your homework and find a reliable company. When checking out vendors, ask a lot of questions. Eliminate any prospects that don’t seem realistic in price or if something else seems off. Keep in mind that it’s standard practice for the company mail the message on your behalf to avoid violating the CAN-SPAM law.
The cost of mailing lists, physical advertising, postage, and mailer creation all factor into direct mail, and it could wipe out your budget if you let it. However, many still swear by direct marketing. For once, it’s tangible. Recipients are holding in their hands, so it’s less likely to be dismissed than an e-mail, which you can immediately delete. Conversely, “junk mail” is regularly trashed before it is even read. If you go this route, the same rules apply when purchasing a mailing list. Shop around and be careful of poor-quality lists or shady activity.
Depending on the nature of your business, this could be the way to go. If you’re a long-established mom-and-pop in your town and you swear by direct mail, then by all means don’t just abandon it for an e-mail campaign. This is a good chance to test the waters and see what works.
“I’m in with the in crowd; I go where the in crowd goes. I’m in with the in crowd; And I know what the in crowd knows.” Lyrics by Billy Page 1965 B.C. (Before Computer)
Crowd sourcing. Crowd funding. Gee, you just figured out “going to the cloud” – and now “crowds”?
Clouds, crowds when will it all end?
The two terms sound related to each other. Is there a difference between the two? Most important, is this something worth spending my already limited time as a business owner figuring out?
Short answer to the last question is a (qualified) “yes.”
Now, you aren’t going to become an expert on either type of crowds (sourcing or funding) by reading a short article or post on the Internet – even this one. However, every journey begins with that first step.
What the In Crowd Knows
First, let’s take a little mystery out of crowd sourcing. You already know more about “The Crowd” than you think you do. You’ve most likely already used the technique of crowd sourcing to solve a problem many times over. You don’t even need a computer to do it.
A very simple example is a group of friends who meet for dinner. During the course of conversation someone presents a problem they’re having with a co-worker at their place of employment. Even though no one else at the table works with this person, different people put ideas out as to how that problem might be solved. This is crowd sourcing.
Another example is a group of women friends who go clothes shopping together. One of the women is tired of her same old look and is ready to try different things. She asks her friends to help her pick things out and provide feedback as to how they look on her. This is crowdsourcing.
Now let’s take a look at crowd sourcing from a small business perspective. Most small businesses don’t employ full time graphic designers. Instead, they (and you’ve probably already got this this term on the tip of your tongue) outsource projects to an outside independent contractor. Before “The Crowd” there was only one option: contact various providers, get a few bids, and then cross your fingers and hope you made the right choice.
But now crowd sourcing offers you another choice. The Internet has given the world a wonderful gift called social networking and, instead of being limited to inviting a few contractors to bid on your logo project – you can now you can invite an entire crowd.
It gets even better. What if you’ve got an idea for a new product or a new idea for your business you want to get feedback on? Or maybe a way to approach an issue or challenge you’d like others to chime in on. You can put that out to the crowd as well.
Involving your customers in developing products or services is extremely powerful – it reinforces the fact that your business is sincerely working to meet the customer’s needs. It can greatly reduce product development costs as you are less likely waste resources creating products your customer doesn’t want. Crowd sourcing is a very effective way to involve your customers.
Crowd sourcing sounds great – but what if you’re a startup or a small business that doesn’t have the financial resources to pay anyone in the crowd for that logo or produce a prototype of your new product?
You guessed it, that’s what crowd funding is all about.
Getting Cash from the Crowd
Crowd funding got its start in the creative sector. Artists, photographers, and musicians solicited their fan base to help fund one of their projects via social networking. Those who donated were promised a “reward” or “perk” in exchange for their – for example a musician might offer a free CD once they received enough funds to produce it. A writer might offer a signed copy of a book. This then grew from creative individuals soliciting for funds from their own fan base to sites where people (i.e. small business owners) could sign up and pitch their projects to larger “crowds” of people.
In a very short time crowd funding was embraced by both the business and nonprofit sectors as an alternative funding resource outside of those traditional sources such as friends and family, bank loans, or venture capital. Generally speaking crowd funding does not usually involve equity ownership (i.e. selling shares or an ownership stake in the business.) Instead, businesses follow the “reward/perk” model. For example a business may offer discounts on the product being funded once it is ready for production.
However, there are instances where equity ownership (i.e. “shares” or the person providing funds receives some level of ownership in the business) is being offered – although legislation is in the works that will impact securities law in this regard. Any small business anticipating offering any sort of equity ownership should obtain legal advice before making their offer public as there are many regulations for selling securities.
Think You Want In?
There are many respected economic and business professionals who believe that “The Crowd” will have (and is having) a profound impact on the way business is conducted as well as funded. Certainly both crowd sourcing and crowd funding provide potential benefits for small business owners. However, both require the same due diligence and planning on the part of a small business owner as any other strategy. No matter how tempting it might be to “jump on the bandwagon” – be sure you do your homework first.
Brick and mortars are tired of being saddled with state taxes while online businesses get off Scott free. While some states do require Internet-based merchants to pay up, two bills are in Congress that would make this universal in all states.
While it likely won’t be settled until after the election (who wants to be seen supporting a tax raise as November approaches?), it is assumed both Mitt Romney and Barack Obama support this move. In 1992, the Support Court ruled that online state taxes would place an undue burden on retailers that do not have a physical presence in their communities.
In support of the tax, a group of states have united to create the Streamlined Sales Tax Project (SSTP), with the goal of tax simplification, which big-name online merchants such as eBay say doesn’t address their needs. More than 24 states support the campaign. Proponents of the project cite the uneven playing field between brick and mortars and online merchants and the harm caused to local economies as reasons for their necessity.
Ebay contends that the SSTP does little to streamline, citing the many jurisdictions and tax rates and compliance issues that will still exist. They also believe the move negatively impacts job creation and creates more burden on these merchants in an already adverse economic environment.
Online merchants accounted for 7 percent of retail sales last year, and many believe that big-name online merchants such as Amazon and eBay are squashing small brick and mortars.
As far as how the candidates stand, Romney passed online sales taxes in his last term as Massachusetts governor. In fact, his potential chief-of-staff, Utah governor Michael Leavitt, is known as a strong advocate of the tax.
Meanwhile, the question remains: Would Obama would support such a tax? While he hasn’t made any statement on the issue as Election Day approaches, his supporters in Congress are back the tax, and it is assumed Obama does as well.
To date, the Internet Tax Freedom Act (ITFA), renewed to be active until 2014, protects online merchants from extra or discriminatory taxes. However, it doesn’t preclude state and local governments to charge sales tax.
On June 29, Texas joined five other states that Amazon has agreed to collect taxes for. The other states are Kansas, Kentucky, New York, North Dakota, and Washington. Within a year and a half, the number is expected to more than double to 13.