WePay is the anti-PayPal

WePay founders Rich Aberman and Bill Clerico By Jennifer Alsever, contributing writerOctober 12, 2010: 5:17 AM ET

(CNNMoney.com) -- Look out, PayPal. Two young entrepreneurs are gunning for you.

Inside a Palo Alto, Calif., building that once housed PayPal headquarters, the upstarts -- Rich Aberman, 25, and Bill Clerico, 24 -- are growing a new online payments company. Their investors include PayPal cofounder Max Levchin. Their mission? Poaching part of PayPal's business.

Aberman and Clerico are the founders of WePay, an online service that lets groups of people collect money for shared expenses, like renting a ski house or giving a class gift to a teacher. They launched the company in 2008 and, in the past two years, landed $9 million in seed capital from Silicon Valley A-listers including YouTube founder Steve Chen, former Intuit (INTU) CTO Eric Dunn, and Ron Conway, who backed Twitter, Facebook and Google.

Angel investor Max Levchin believes that WePay's exclusive focus on group expenses will win a chunk of the lucrative online payments market -- the market that was born in 1998 when Levchin launched PayPal. EBay (EBAY, Fortune 500) acquired it four years later for $1.5 billion.

"These guys showed up and said, 'Hey, this is what PayPal doesn't do well.' And I said, 'Yeah, I know,'" Levchin says. "The rest was establishing that these guys could do it better."

The idea for WePay came to Aberman two years ago, when he was struggling to raise funds for his brother's bachelor party. He had to collect $4,200 from 14 guys to cover the rent at a Florida beach house, bottle service at a club, and enough burgers, beer and chips to feed a small army. Rounding up the money was a hassle. It took several weeks of nagging people scattered across the country, collecting checks and cash piecemeal as they rolled in. There must be a better way to do this, he thought.

In April, WePay -- now a 13-person company -- rolled out its online payment service. Now 500 new user groups join WePay each week, Aberman says. The website's weekly transaction totals more than tripled between July and August, when it hit $1 million.

The company gets a commission from each payment: either a flat 50 cents or 3.5% of the total, depending on whether users are paying with their credit cards or bank accounts. Users gather those payments in shareable, purpose-specific accounts, rather than personal ones. The system lets group leaders keep track of who has paid, nag delinquent friends with e-mails, and withdraw collections.

But WePay faces one giant, looming problem: PayPal could easily crash the party. With 85 million active accounts and more than $71 billion passing through its system annually, PayPal rules the online payment space. If the behemoth improved its existing system for multi-party transactions, WePay would be in serious trouble.

PayPal already allows users to request money from groups of friends. Its online services, however, are designed primarily for e-commerce, which makes up the bulk of PayPal's transactions.

PayPal has no current plans to beef up its group payment system, says company spokesman Anuj Nayar. And WePay investors say they aren't concerned about the behemoth changing its mind.

"As much as I love and respect PayPal, I'm not too worried, because they're not moving as fast as startups," says Dave McClure, a former PayPal employee and a founding partner at 500Startups, a venture fund that backs WePay.

Aberman says good customer service is WePay's best defense. WePay's phone number is posted prominently on the company's website, and customers are encouraged to call in suggestions.

"I want people who are sitting literally next to the engineers, so there's direct communication between people building the product and the people talking to customers," he says. Such conversations have already led WePay to add features for accepting donations and selling tickets online.

But in the volatile world of startup businesses, the possibility of getting crushed by a giant is never out of the picture. "In the back of our minds, we are pretty suspicious and nervous that anyone will move into our space," Aberman admits.

Staking out that space wasn't easy. Clerico quit his investment banking job to work full-time on WePay; Aberman deferred a scholarship to law school at New York University.

Their gumption impressed Paul Graham, a partner at Y Combinator, the Silicon Valley venture that gave WePay its first big break: $17,000 in seed money. "These guys had already jumped and they were down the cliff and they said, 'Will you please give us a parachute?'" Graham says. "It seemed like they had staying power."

Now that WePay has launched, its fanbase is growing fast. Take Michael Polark, a Boston financial analyst who used the service in May to collect $2,200 from 40 friends who were renting a trolley to ride to a Boston College commencement party. When kinks in the system led several people to accidentally overpay, Polark needed to transfer money back to them. A call to WePay's customer service department quickly sorted out the problem. Plus, the company gave him $20 for the inconvenience.

"I've been recommending it to all my friends," Polark says.

That's good news for Aberman, who hopes word-of-mouth enthusiasm from customers will help grow his company.

"We're trying to be the anti-PayPal," he says. "We don't want to bite the hand that fed us, but there is a big opportunity on the table to satisfy consumers' needs." 

View the original article here

Why a $14/hour worker costs $20

 The Ultimate Small-Business Resource GuideWhy a $14/hour employee costs $20

 

Workers at Jim Garland's aviation-services firm need FBI background checks, uniforms, health and unemployment insurance and other hidden costs that push the price tag of a $14/hour worker much higher.

By Catherine Clifford,

For Jim Garland, who owns a corporate aircraft cleaning and support services company, a $14 per hour worker has a true cost of $19.63 per hour, or about 40% more than base pay. This so-called "loaded rate" includes fixed expenses -- federal and state taxes, health insurance, workman's compensation, uniforms, and paid time off -- along with soft costs like the time spent training a new hire.

Sam Meisler wants to bring on additional assistants for his veterinary business, but timing the hires so they pay off financially is tricky.

Washington's lawmakers are throwing a lot of ammo at reducing the jobless rate, including a new tax break for hiring the unemployed. But no matter what incentives the government offers, it's hard to convince business owners to hire until they're absolutely certain they need to. Employees are often the most expensive investment a business makes.

"Our entire existence revolves around two numbers: revenue and payroll," Garland said of Sharp Details, in Dulles, Va., which he launched out of his car trunk in 1991. Payroll for 60 workers accounts for around 70% of his firm's operating costs.

Garland outsources his entire human resource department. Joe Sherrier, director of human resources for Employment Enterprises -- the company that manages Garland's HR -- said that as a general rule, business owners should to expect an employee to cost an additional 25% to 30% on top of base salary each year.

Breaking down the numbers: Hilda Kernc has been running a Lebanese food production company out of her home kitchen near Chicago for a bit more than a year. Her vegetarian cooking is so popular that she works as many as 20 hours a day keeping up with demand for her hummus and other Middle Eastern fare.

Kernc is applying for a Illinois state business license and is about to start renting out a commercial kitchen part-time. Previously distributed under the name Hilda's Homemade Appetizers, Kernc's snacks will now be branded "Deleez Appetizers," a combination of the word "delicious" and the Arabic word that means the same.

Kernc thinks it might be time to bring on her first employee. "My husband is helping me, and we were thinking we need to hire somebody," she said. "It will kill me if I am going to work like this."

To prepare, Kernc began researching the costs.

State income taxes vary significantly, but federal taxes are standard: Social Security tax is 12.4% on the first $106,800 of earnings, and Medicare taxes run another 2.9% of all wages. The employer and employee each pay half. (The self-employed pay the full cost of both taxes themselves.)

Employers also have to pay a federal unemployment insurance tax of 6.2% on the first $7,000 of each employee's wages. Illinois adds on a state unemployment tax that's currently 3.9% for new companies on the first $12,520 of wages. (Existing companies have their rates adjusted up or down depending on how many former workers file unemployment claims.) Part of the state unemployment tax is deductible from the federal, but that still leaves employers on the hook for a tax bite.

"I can't afford it," Kernc concluded. "When I saw the price to hire somebody, at this point I can't do it."

But Kernc she also knows she can't put it off indefinitely if demand stays high. "I can't work 24 hours per day," she said.

Hidden costs: The little perks that employees come to expect, from free coffee to daycare services to group life insurance, factor into the price tag of a new worker.

"All of a sudden, by hiring a new employee, adding up all the fringe benefits, it can be costly," said Tom Ochsenschlager, a senior manager at the American Institute of Certified Public Accountants.

Sam Meisler owns two animal hospitals and a vaccination clinic in Knoxville and Alcoa, Tenn. He'd like to hire another one or two full-time assistants to work in his My Pet's Animal Hospital clinics. His company's business is growing, but still, timing the staff expansion is tricky: "What we have to try to do is anticipate the recovery," he said. "It is difficult to know when to hire."

A new hire can actually decrease sales in the short term as they learn the job. As new assistants train on their computer system, Meisler expects occasional missed charges.

"You may even lose a client or two just from miscommunication, because of the veterinarian assistant not knowing how to talk to them on the phone," he said. But on the flip side, extra administrative help gives the veterinarian more time to talk to each client and potentially sell additional services, such as grooming and dental cleaning.

Treat employees like family

A bad hiring decision can be a big hit to a company's bottom line.

"The cost of hiring the wrong person becomes incrementally more expensive the shorter period of time they have been with you. The first 90 days are typically the most expensive to have them on board," said Sherrier of Employment Enterprises. "If they stay, that is cost you can recover."

The cost of losing an employee and hiring a replacement throws complicates the "loaded rate" calculation of what a worker costs each specific business.

Garland's employees work on high-profile corporate jets, and each of his new hires has to go through a full FBI background check and drug screening. Swapping an experienced worker for a brand-new replacement that needs training sets back the team's productivity.

Washington's policy plans: Job creation "must be our No. 1 focus in 2010," President Obama said in January in his State of the Union speech.

Since then, he's let loose with a fusillade of proposals, including a $5,000 tax credit for business owners for each new hire. That didn't fly on Capitol Hill: Congress pushed back hard against so much spending in the face of a record deficit and growing national debt.

The $17.6 billion jobs bill Obama signed into law last week included a one-year Social Security payroll tax holiday on new hires that were previously unemployed -- but it's a shadow of the more aggressive hiring initiatives Obama had pushed for.

Meisler can hire an entry-level assistant for $8 to $10 an hour. At an annual base salary of around $20,000 -- plus $2,018 for Social Security, Medicare and Tennessee's typical state and federal unemployment taxes -- every extra dollar of government hiring incentive puts a new worker closer to the tipping point of paying off financially.

The $5,000 tax credit Obama talked about would have prompted him to add staff. "I am not sure whether payroll tax credit alone would do it," Meisler said. "I will probably just act like I usually do -- when we need someone, we will hire them -- but there is no real incentive at this point." 

View the original article here

Where entrepreneurs need nerves of steel

Glenn Oliver, president of H2Bid.com, at RiverWalk along the Detroit River. 

FORTUNE -- For Glenn Oliver , it took a certain amount of faith in the unseen to launch a business in Detroit, the poorest major city in America. Oliver is a lawyer, not a businessman, whose experience included clerking for a Michigan Supreme Court justice and approving utility contracts. But an entrepreneurial streak that runs in his family emerged when Oliver began to ponder the potential of a resource the Great Lake State has in abundance: water. Rising demand has spurred a global boom in water-supply projects. So why not create a marketplace for all the new business, where contractors and suppliers can bid on projects around the world? The result of Oliver's inspiration is a website he spent nine months building, H2bid.com, which charges $450 a year for a membership and bills itself as the "largest clearinghouse" for water contracts. Oliver's venture isn't profitable yet, but he's confident that his startup will help the battered city. "Entrepreneurship," he notes, "is the largest creator of wealth."

Detroit needs a lot more of both. Oliver is one of the exceptions to a dire situation. While the Great Recession devastated many sectors, it has been particularly disastrous for black-owned companies, which account for 7% of nonfarm businesses in the U.S. That's one reason the official unemployment rate in Detroit, America's most populous majority-black city, is 25.5%, although authorities believe the actual rate may be twice that.

Scores of businesses have shuttered. Even the steel-supply company launched in 1980 by Detroit's current mayor, Dave Bing, is struggling financially. The credit crunch and the historical wealth gap between blacks and whites have combined to choke off the resources needed to launch new businesses. "It's probably as tough now for black entrepreneurs as at any time in the history of this country," says Steven Rogers, a professor at Northwestern University's Kellogg School of Management.

It wasn't always that way. Detroit has long been a hub of black entrepreneurship, especially after Southern blacks began migrating en masse to participate in the 1920s auto-industry boom. In the 1960s and '70s, many blacks took the skills they'd gained integrating white-owned firms to build their own businesses: hotels, auto dealerships, construction companies, and architectural firms. In 1973, when Black Enterprise magazine published its first annual listing of the nation's 100 largest black-owned companies, No. 1 was Detroit-launched Motown Industries, with $40 million in revenue. (Today it's St. Louis-based World Wide Technology, with $2.2 billion in revenue.)

In the current business climate, that entrepreneurial attitude is one of the few things that Detroit's prospective startups have going for them. But another is a strong sense of family and school ties that can be tapped for potential investors and customers.

Those proved the edge for Michelle Wilson Brown when she launched Red Velvet Cupcakes in suburban Detroit. The University of Detroit Mercy-trained lawyer had been baking cupcakes for relatives' parties for years, hoping it would someday become a business. When she decided to take the plunge in 2008, banks were so stringent with loans that she didn't bother to apply. Instead, the 36-year-old mother of four children raised thousands of dollars from family and friends. Then last summer, a sorority sister, Yolanda Baston, joined the business and made a $50,000 investment.

Now Wilson Brown is scouting a location for Red Velvet Cupcakes' first retail shop, while carting baked goods in her minivan to customers at companies like Chrysler and Blue Cross Blue Shield. The cost -- about $25 for a dozen cupcakes -- is lower than for some premium cupcake shops, which sell a dozen for about $36. "Cupcakes shops are thriving even in a weak economy," she says, adding, "People are willing to treat themselves to something small." Wilson Brown sees airports as another ripe opportunity.

In Detroit, as in other places, the entrepreneurial spirit tends to stick with families, even after the next generation has gone off and earned advanced degrees. Wilson Brown's father started his own construction firm in Detroit. "Maybe seeing my dad launch his own business subliminally taught me you don't have to work for someone else to be successful," she says. "There's such a difference. I do what I love. I work all night. At a law firm, when I was doing that, it wasn't the same passion and fire I feel now."

Glenn Oliver, 48, had a similar experience, watching his grandfather run an appliance repair and installation business. "He made more money than anyone I knew at the time. He paid for his car in cash," recalls Oliver. "So my exposure goes way back. That's in the DNA of most entrepreneurs."

For offspring who inherit a business, the tradition can be more complicated, especially when it means taking the family business in a different direction. Mark Douglas had barely settled into his job as president of Avis Ford in suburban Southfield when the auto business went into its latest crisis. His father, Walter, had started the dealership two decades earlier. Douglas, 43, an engineer by training with a University of Michigan MBA, knew he had to move quickly to save the business. "The biggest fear was people not being accepting of change. I realized we couldn't continue down the same road that we'd been on."

Douglas had to scale back what had been a proudly growing business, even while moving more aggressively to help customers afford cars. He reduced employees from about 140 to 106 and began running ads more frequently in black newspapers like the Michigan Chronicle to better target Avis's (CAR, Fortune 500) core consumers, many of whom have low credit scores. He hired a "credit busters" team to specialize in subprime loans, which in the auto business haven't suffered the same failure rate as in the housing industry. "That's given us a niche," he says, producing sales of about 60 new and used cars via subprime loans each month. As a result, Avis Ford remains one of the top-selling Ford dealerships in the U.S.

One advantage for black entrepreneurs, or any minority startup, is an understanding of America's diverse marketplace. Donald Coleman, 58, the CEO of GlobalHue, a fast-rising ad agency based in Southfield, saw both racism and opportunity in the state of the ad industry. The son of a United Airlines skycap, Coleman played football for the University of Michigan and later the New Orleans Saints before injuries prompted him to quit football and join an ad-agency office in Detroit. He says he endured more than a few bigoted remarks before launching his own business from a rented 500-square-foot space in a friend's suburban office, at first dealing mainly in promotional posters for car and beer companies. But then came a contract with Ford (F, Fortune 500) to handle print and television work, and later deals with Domino's Pizza (DPZ) and Chrysler.

Coleman bought other ad firms targeting black, Latino, and Asian- American markets. The strategy has proved a success: A client like Chrysler, for example, can get advice on how to market its Jeep Grand Cherokee to black, Latino, and Asian consumers, all from one source. That approach has proved especially attractive at a time when clients are reducing their marketing budgets.

Coleman offers this advice to prospective entrepreneurs: "You've got to find a way to find capital, find a business that has a differentiation from competitors, and find a way to get your operation directly in front of a decision-making client." He adds: "Whatever the obstacle, don't let it stop you. You may not be able to do it in a straight line."

As his counterparts would attest, the path for new businesses has many curves and not many road maps. 

View the original article here

The Five W's of Marketing

By Steve McKee

You've heard of the Five W's: who, what, when, where, and why. They're the elements of information needed to get the full story, whether it's a journalist uncovering a scandal, a detective investigating a crime, or a customer service representative trying to resolve a complaint. There's even an old PR formula that uses the Five W's as a template for how to write a news release.

Most of the time it doesn't matter in what order the information is gathered, as long as all five W's are ultimately addressed. The customer service rep's story may begin with who was offended, while the journalist may follow a lead based on what happened. The detective may start with where a crime was committed while details of who and what (not to mention when and why) are still sketchy.

The Five W's are helpful in marketing planning as well. But unlike in other professions, the development of an effective marketing program requires that they be answered in a specific order: why, who, what, where, and when. The reasons may not be obvious, but by following this pathway you can avoid a great deal of confusion, trial and error, and blind alleys, preserving your company's precious time and resources.

Many marketers instinctively begin with questions about what and where, as in "what" their advertising should say or "where" it should appear. That's what gets them into trouble. They may have some success putting their plans together by relying on intuition and experience, but both can be misleading in a rapidly changing marketing world. These days it's easy for anyone to become confused by (or fall prey to) the latest and greatest trends and tactics.

Smart companies begin by asking "why"—why are we expending our limited resources in marketing? Why do we believe they're better invested here than in other aspects of our business? These questions, properly considered, force company leaders to clearly define their business and marketing objectives and confront their (often unrealized) assumptions before they get too far down the road.

In some cases they may have unrealistic expectations of their marketing efforts. In others, they may be looking to advertising to solve a non-advertising problem. In still others they may be reflexively reacting to a competitor's moves, or to any one of a number of other marketplace or internal dynamics (see "Who's to Blame When Growth Stalls?"). Beginning with the "why" can be challenging, but starting here is critical to ensuring that your subsequent efforts are on target.

The second question is "who"—who is essential to our achieving our goals? To whom should we be directing our message? Whose hearts and minds must we win in order to succeed? The answers to these questions should be derived from the business objectives identified above so that the target audience(s) for your effort are clearly related to them.

For example, a marketing plan meant to generate significant new top-line revenue would likely focus on new customer attraction. An effort that's meant to enhance margins may concentrate on improving your brand's value equation among existing customers. And a plan to enhance your company's price/earnings ratio would focus on prospective investors and industry analysts as its primary target. The better any company defines its "who"—and the more it can know about their lifestyles, behaviors, attitudes, opinions, wants, and needs—the more effectively it can address the remaining three W's.

Next comes "what," as in what it is you need to offer your target audiences in order to accomplish your objectives. This, of course, encompasses a host of business decisions, from product to pricing, policy to packaging, and everything in between. But it is also where key branding issues are addressed, including positioning, differentiation, and a determination of the personality dimensions that are appropriate for both the brand and the task (see "Building a Better Brand").

To be sure, as market conditions and customer needs change, the "what" of your offering will be a continually evolving proposition. But by having a solid understanding of the "who" and "why" of your efforts, you'll be more likely to get, and keep, the "what" right.

Finally, the last two W's can be addressed as you dive into the specifics of campaign planning. The questions now revolve around where and when the best places and times are to communicate your "what" to your "who" in service of your "why." At this stage you'll be required to make many tactical decisions, but if you've effectively addressed the first three W's you'll have the context and perspective you need to make the final two work as hard as possible on your behalf.

In some ways the principles of marketing are simple, but their simplicity can be deceptive. Beneath them often lie hidden complexities that you ignore at your peril. The common way of citing the Five W's—who, what, when, where, and why—rolls off the tongue and is a great mnemonic device. But if you want to optimize your marketing efforts, think why, who, what, where, and when. The order makes all the difference.

Steve McKee is president of McKee Wallwork Cleveland and author of When Growth Stalls: How It Happens, Why You're Stuck, and What to Do About It. Find him on Twitter and LinkedIn.

View the original article here

The Secret to Small Business Tech Support

Ever get that sinking feeling? That pit-of-the-stomach sensation when you know something's gone wrong. Business owners know what I'm talking about. We get it when that customer calls to complain about a job. Or when a supplier's key shipment doesn't arrive on time.

You're a business owner. You know this feeling. When is it the absolute worst? When it's a technology support issue. You come to work and your computer screen is not the way you left it the night before. When you arrive at your office this morning, you're not greeted by the typical desktop. Instead, the screen is frozen at "Windows is starting up." An update that automatically downloaded last night screwed something up. Your screen is black. And now so is your mood.

You watch the screen for a few minutes, waiting for something to happen, but you know nothing will. Finally you restart the computer. Twice. Same result. Now you have that sinking feeling. You see your morning slipping away: This computer isn't going to start. And neither is your day. Until you get some help. You will have to call technical support. But halt your hyperventilation—there's no need to worry at all. As a fellow business owner, I'm going to help you. Because I've learned how to handle technical support with a few rules for people like us.

You can get angry if you live in a city where it snows half the year and your team starts the season 0-4. You can get angry every time you hear that Jennifer Lopez is paid $12 million to be a judge on American Idol. But this time, getting angry won't help anyone. And it won't help you get your issue resolved any quicker. If you're running your own business, the last thing you want is for your employees to see you storming around your office, wildly swinging a golf club over your head like a tomahawk while you kick over your chair and repeatedly yell "Why, why, why!" It's enough that your family's seen this behavior. You must give employees the impression that everything is in control. That YOU are in control. You are a businessman. You are Don Draper. So do what he would do at 8 a.m.—have a bourbon and a smoke. Microsoft (MSFT) Windows never rattled Don Draper, right? So be calm.

Of course it's annoying that you have to wait on hold. And we all realize how aggravating it can be when you have to punch in your "customer ID," ZIP code, mother's maiden name, favorite vacation spot, and social security number into the automated system three times, only to be asked for that same information again the minute a live person comes on the phone. It's not his fault. The technician is just doing his job. He's going to be nice. You need to be nice, too. You're a business owner. How would you like it if some customer was being a jerk to one of your employees? You're not going to get on his good side by being a jerk to him. At best, you'll earn the right to be put on hold five more times than necessary or be forced to sit and wait in silence for many extra minutes, wondering what he's actually doing as he's clicking away on his keyboard.

You know from running your own business that sometimes the answers can't be delivered immediately. Don't you wish your customers would also be a little more patient when they call with a problem? Of course you do. So take a deep breath. Don't worry about those long silences on the line when you think you've been disconnected. He's there. He's probably just mulling things over. Or talking about the issue with his colleagues. Whatever. Be patient. Answer the questions. Take this time to rearrange your schedule. This problem will ultimately get resolved. It's going to just take a little time, that's all. Don't even consider grabbing the golf club again and knocking that picture of your wife and kids at Disney (DIS) off your desk.

View the original article here