"The economy is cruel," Blondie said to me yesterday. "When times get tough, some people switch from prime rib to sirloin, and others switch from sirloin to hamburger. But cattle don't know that. The proportion of prime rib to hamburger stays the same - so prime rib gets cheaper, and hamburger gets more expensive."

Markovnikov's Law

"Markovnikov's Law", I said. Blondie looked bewildered. "In organic chemistry, it's a law that determines where spare hydrogen atoms go. It's all statistical, of course, but as a rule, in an organic chemistry reaction, the atom that already has the most hydrogen atoms will be more likely to get any spare hydrogen ions floating around."

"In other words, even on a molecular scale, them as what has, gets" Blondie said, "You mean the poor get poorer and the rich get richer"? That's an inelegant way to put it, I said; ain't you done been ed-jew-ma-kay-ted?

Every Good Story

Every good story, my friend Nickie says, starts with someone getting laid. I told Nickie that she's been watching too many bad movies. It is true, though, that a good story starts off with hook, something that will draw you in, get you interested, convince you to continue with the story. Sometime, it starts off with the bang of a gun - but it can easily start off with some private detective sitting behind his desk, cleaning his desk, and bemoaning the fact that the rent is overdue - which means when that breathy blonde with the great rack stumbles into his office sixty seconds later, he has to accept whatever job she wants done, even though it sounds pretty hinky.

Or perhaps it starts off with the protagonist in a car that's broken down an a lonely highway, no food or water, and it's a three-day trek to civilization. No matter what the story, you need to get the reader hooked fast, or he will put the book down and move to another.

It doesn't quite work that way in real life. No matter how boring your own life, you aren't likely to give it up, die, and come back as someone with an interesting life. Reincarnation is a great idea, but most people don't believe in it, at least not enough to kill themselves.

Since You Can't Switch Stories

Since you can't put down this story, and live another one instead, it's important to figure out what kind of quilt you can sew from the scraps of your life. You can, of course, toss everything into the back of your car, and start over in a new city. Ronald Reagan advocated that solution in the early 1980s. He called it "voting with your feet." The problem, though, is that unless you live in Chernobyl, the problem probably isn't a geographic one.

It's expensive to move. Benjamin Franklin said that "three removals equals one fire", and back then, people didn't move very far. When you move to a new community, you discard possessions that aren't worth moving, but that means buying a new broom now when the old broom had six months' usefulness in it. What's more important is that in your old home, you know where you can get your car fixed reliably, in a reasonable time frame, and in your new home, you're tossing the dice every time you take your car in for an oil change. I moved to Pennsylvania a decade ago, and I still haven't found a good shoe store for my Fred Flintstone feet, whereas in Indiana, I could go to Doug Pilcher's, which offered me a wide variety of shoes in my size.

Not Sex, Nor Cleaning A Gun

It seems to me that many of my posts, these days, are inspired by a twitter post. Roland Hill (@crumbcake) tweeted, "I came on the net to try to make some money, so I could live better, so I could eat 3 meals a day, instead of 2, but it not working for me."

Well, yeah. If you get a job working for someone else, you work two weeks, and then in three weeks, you get your first paycheck. If you are a free man, instead of a wage slave, it doesn't quite work that way. Like a farmer, you have to spend a lot of time and money tilling the soil, then you spend a lot of time and money planting seeds, then you spend a lot of time and money fertilizing your crop, then you spend a lot of time and money fighting weeds, and then, if you're lucky, you end up with a crop. You spend a lot of time and money harvesting the crop, and a lot of time and money storing your crop and drying it down, and then you spend a lot of time and money hauling the crop to the elevator, and you hope that the price you get for your crop is sufficient to cover all the money you've laid out, and you get something for your time and effort.

But sometimes, you don't get a crop at all. That's called being unlucky. Sometimes, you're unlucky because of the weather. Sometimes, you're unlucky because you don't know what you're doing. When you get a good crop, it's because of the weather. You will find that most everyone else gets a good crop, too, and because the price is determined by supply and demand, you have a lot to sell, but at a low price. When the price is high, it's because most farmers' crops did poorly, so you have little to sell at those high prices. And you buy your supplies at retail, sell your production at wholesale, and pay the freight both ways.

But You're Free

All other businesses work pretty much the same way as farming. The big difference is that most farmers produce a commodity, while other businesses produce something they've designed. The result is that most farmers get a fairly low profit, but as long as they don't screw up too bad, they'll average out in the black.

Other businesses, though, are a lot riskier. It's a rule of thumb in business that "nothing good lasts forever." If you have a profitable product, someone else will notice, and start trying to share in your profits. How it usually works is that Joe starts up a company making gizmos. He plays around with the product he's making, until he strikes upon a gizmo that people really like. Perhaps it's a red gizmo with a silver flange. He's able to produce different variations of gizmos until he hits upon a winner because everything is made by hand. He ends up hiring more and more people to make gizmos, until Bill starts a gizmo factory. Bill knows what will sell - it's red gizmos with silver flanges. So instead of hand labor, he installs machinery that allows him to make red gizmos with silver flanges in great quantity, with very little manpower. He undersells Joe, and Joe panics.

Henry comes along and says to Joe, "How would you like to be a zillionaire?" Joe has made a very nice living, but he's hardly a zillionaire, and he's trying to figure out how to compete with Bill. Hell with it, he says, and he sells out, and Henry builds a factory that's even more efficient than Bill's, and because he offers name brand gizmos with silver flanges, he can command a slightly higher price, and considerably better profits than Bill.

Henry Wants To Expand

Henry can sell more gizmos if he cuts the price, but that's cutting the profit as well. Sometimes, a Henry will buy out someone else, but usually, he fiddles with Joe's business. He has three low-risk ways to do that. One way is to produce a different product using the same process, for sale to the same customers. He offers a blue gizmo with silver flanges, for instance. A second way to produce the same product using a different process, for sale to the same customers. The new process saves him money, the customers don't notice any difference, and Henry pockets the difference. The third way is to sell the same product, made using the same process, to different customers. Maybe he's been selling to doctors, and now he tries selling to dentists. Maybe he's been selling to Americans, and now he tries selling to Canadians. Maybe he's been selling to woman, and now he tries selling to men.

But if you're starting out in business, you don't have a proven product, you don't have a proven process, you don't have an established customer base. You can fiddle around a LONG time, trying to find a combination that works.

In Come The Hucksters

Actually, there are good hucksters and bad hucksters. A huckster used to be an itinerant vendor, a WalMart on wheels. He'd go from door to door, and housewives would buy pots and pans, needles and thread, whiskbrooms and dustpans, whatever they needed, and they didn't have to take the time and money to travel to a store to get what they needed. There are still a few hucksters around. I saw a Schwann's truck a couple of days ago. They mostly sell frozen food. I think there are some Jewel Tea huckster trucks, too.

But Schwann (and I presume Jewel Tea as well, although I've never dealt with them) establishes routes, and they depend on repeat business, so they offer high-quality products, and they are honest. The bad reputation that hucksters have comes from the agents that flew low, cheating consumers, and never returning. They would sell a can of ground pepper that was pepper on the top, and dust underneath. They'd sell nutmegs that were carved from wood.

And the latter group of hucksters have given up their wagons, and moved to the internet. Give me $7 or $20, or $349, or $1499, and I'll set you up in a profitable online business. The thing that their victims fail to ask is, "Why do you need me?" The internet, after all, is completely automated. If my deal was any good, I wouldn't be giving it to you for a low price, and telling you to get traffic by buying advertising from Google. Instead, I'd keep the website myself, buy advertising from Google, and keep those profits.

But That Doesn't Shut You Out

There was an ad a few years ago that IBM ran, about some entrepreneurs who were in the sunglass trade. They had trouble getting other stores to offer their wares for sale, so they built a website, business started rolling in, and they got rich.

I had trouble buying the premise of the IBM ad. Was there something special about their eyeglasses, that people couldn't buy the same thing more conveniently and cheaply at CVS or RiteAid? It's expensive to ship stuff to consumers. There's a $2 surcharge for delivery to a residential address, if you use UPS or FedEx. Sending a 2 ounce box across the street via Priority Mail costs $4.95. Add that $5 to the cost of the transaction, and it's hard to compete when you're selling a $2 item.

And it costs a lot of money to get someone to shop your store. The local grocery store probably pays close to $10, between the cost of advertising and the cost of discounted merchandise, to get you to park your car in their parking lot and come in, shopping. That's actually a bargain; it typically costs mail-order companies $15 to $20 in promotional costs to get a customer.

The Implications

So you want to sell something that customers can't buy conveniently and cheaply nearby, and it needs to be something with a high profit margin. Typically, mail order companies pay 20c on the retail dollar for their merchandise, while a variety store pays 50-70c on the retail dollar.

One way to do this is to sell something local businesses do poorly at. Want a picnic table? Buy it at Lowes, or Home Depot, or WalMart, and you have to tote it home, yourself. Even if you have a pickup truck, that's difficult to do. You could always buy it unassembled, of course, but between the people who don't have any way of carting it home, and the people who want something already assembled, the merchant has wiped out most of the potential customers.

On the other hand, if you made picnic tables yourself, and sold them locally on the internet, you could get those sales by offering the fully-assembled product, delivered to the customer's home. You don't have to compete on price, since nobody else is offering what you offer, and customers expect to pay more for the added service. That's not carte blanche to gouge customers, just a business opportunity.

You could do the same thing with yard barns, or with wooden swing sets, or with bird feeders or bird houses on a post. There are lots of other people doing the same thing, right now. And if you come up with a swing set that kids love more than what's already locally available, you may be able to sell a deluxe $1000 swing set, when the other local companies are asking $400 for a bare-bones model.

Product, Process, Customer Base

The key is to establish a combination of product, process, and customer base that works for you. Once you have a working combination, then you're free to experiment with changing one at a time, leaving the other two alone, to see if you can find a more profitable combination, or an additional profit center.

You've undoubtedly heard that the IRS expects new businesses to lose money the first two or three years. That's true, but a lot of it is because people who are new to business waste a lot of money on things they don't need. Do you need to order expensive stationery, or even modestly-priced business cards? Most people throw away an order of 1000 business cards before they've used up 50 of them. If you need to give potential customers something with your name and number on it, it ought to be advertising. You can put together something with a picture in your word processor, something you can print four to a sheet. Print 10 copies, cut them apart, and you have 40 pieces of advertising - probably enough to last for months. And when you run out, you can print more with a different price, or a redesigned product, or a new phone number. Something is bound to change.

Those hucksters online with the $7, or $239 or $1799 deals? Forget them. Those deals are profitable for them, but not for you.

Other Bloggers On Related Topics:
expansion - farming for customers - getting started - huckster - internet business - Markonikov's Law - product, process, customer base - scam - self-employment - wage slave