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." 

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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." 

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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. 

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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.

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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.

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Stranded Borrowers: Three Case Studies

By John Tozzi and Bob Ivry

Sally Peterson

While banks insist they're willing to make loans to creditworthy companies, lending to small businesses has dropped by $45 billion since 2008, according to filings with bank regulators. Here are stories of three small business owners who are struggling through the credit crunch.

Jaime Honold, 43
Burgers & Beer
El Centro, Calif.
Revenue: $16 million

A year ago, Jaime Honold (left) wanted to open a fifth Burgers & Beer restaurant. Sales at his 25-year-old chain, which operates in California and Arizona, have been flat or slightly down during the recession. Burgers & Beer is still profitable, Honold says, because it has trimmed expenses. Yet when he asked for a loan to raise the cash for the new outlet, his longtime bank told him to wait because of the uncertain economy, he says. "We want to expand but we can't. They told us it's not about your business. We know you're doing good," Honold says.

Russ Brackett, 61
Video Loft
Boothbay Harbor, Me.
Revenue: $1.2 million

Last December, a month after Russ Brackett opened his second store, he says a local bank froze his $50,000 credit line because regulators had warned the bank that it was undercapitalized. Six other banks turned Brackett down when he tried to replace the credit line and refinance another term loan he had with the same lender, he says. Though Brackett has been in business 26 years and was profitable in 2009, lenders told him he didn't have the collateral or cash flow to support a credit line. In July he got a $35,000 microloan from nonprofit lender CEI. "I'm certainly not the only one in this situation. There's hundreds and hundreds of us," says Brackett. "Unfortunately, a lot of them had to fold."

Dan Larson, 52
HydroSolutions of Duluth
Duluth, Minn.
Revenue: $950,000

HydroSolutions, which manufactures components for small jets and planes, has been unable to finance the metal and plastic it needs to fill new orders. Coming off the eight-employee company's dismal lows of 2009, sales have grown more than sixfold this year, Dan Larson says. He took $100,000 out of his retirement savings last year—paying a 10 percent penalty—to keep the company's doors open. Even though the business has recovered, he can't get a $50,000 line of credit. He says his bank is under pressure from examiners to increase liquidity. "I'm just stymied at this point and not able to add new equipment," says Larson.

Tozzi covers small business for Businessweek.com. Ivry is a reporter for Bloomberg News.

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Exporters fear government cuts

Businesses fear the government’s austerity drive will have a devastating effect on industry.

According to the Travelex Confidence Index of 200 exporters, 63 per cent feel spending cuts and tax hikes will have a negative impact on British trade over the long term.

Respondents in the manufacturing sector are concerned that they will be hit hard by the fiscal squeeze, with more than half (53 per cent) saying the measures will have a detrimental effect on the sector.

Only 38 per cent of the total respondents now believe that a weak pound will lead to an export-driven recovery, compared to 53 per cent in June.

The decline in confidence comes despite the recent upbeat figures from the Travelex Confidence Index, where a strong GDP figure in the second quarter had helped to bolster faith in the economic recovery.

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Mobile phone operators stifle international business

Half of business travellers say they have lost custom through not being able to efficiently stay in touch with colleagues or clients.

According to a study of 250 UK business travellers by research organisation Vanson Bourne, 71 per cent feel under pressure to use their mobile phone less when abroad due to the high cost of roaming.

Almost two thirds (63 per cent) of respondents feel roaming charges are unaffordable, with 68 per cent having been surprised by a high mobile bill after a business trip abroad.

As a result, more than two thirds (68 per cent) make fewer or shorter phone calls, with one in five turning off their data connection and 7 per cent switching off their phones altogether while overseas.

Despite their reluctance to use their phones abroad, 74 per cent recognise that not staying connected with clients results in reduced customer service and dissatisfied customers.

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Businesses turn to credit cards for funding

Entrepreneurs look to use credit cards for business funding in difficult times for securing capital.

According to a study by Investec Specialist Private Bank, one in five (19 per cent) intend to turn to credit cards to help finance their businesses.

Respondents are glum about access to funding, with 51 per cent saying monies will be ‘quite hard’ to secure over the next 12 months, while 13 per cent say it will be ‘very hard’.

One in ten will look to sell assets in order to raise capital, 6 per cent expect to secure equity from friends, family or associates and nearly one in four (23 per cent) intend to lease assets in order to raise funds.

Mezzanine finance, a hybrid of debt and equity financing, is set to be used by 20 per cent of respondents, with a further 26 per cent planning to raise funds through invoice discounting or asset based lending.

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Green plans on hold for frugal firms

A focus on consolidation has stalled businesses’ efforts to improve their green credentials.

According to a study of 539 small businesses by bank Lloyds TSB Commercial, only 38 per cent of businesses have taken steps to analyse environmental risks to their company.

More than half of respondents (51 per cent) cite cost as the principle barrier to pursuing environmental initiatives, despite 48 per cent believing that going green would result in a positive reaction from customers.

Other reasons include a lack of understanding of the risks and opportunities (19 per cent), a perception that customers are not interested and a belief that their business doesn’t face any increased risks (16 per cent).

Some 29 per cent say they are putting environmental improvement plans on hold until they have recovered from the impact of the recession.

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To Enjoy Business More, Master the Basics

In the mid-1990s, Howard Mann owned a $150 million freight logistics company with six U.S. offices, 40 employees, and 35 agents around the world. And he was miserable—fighting bank pressure, staff problems, and slow-paying clients. The difficult turnaround and 2000 sale of that company spurred Mann to start a consulting business and write a book, Your Business Brickyard. His $750,000 consultancy, Brickyard Partners of Portland, Ore., tries to get small business owners back to basics so they can have fun running their companies again. Mann spoke recently to Smart Answers columnist Karen E. Klein; edited excerpts of their conversation follow.

Karen E. Klein: You went through a tough slog turning around your company after the recession of the early '90s. How did that motivate you?

Howard Mann: I learned so much about things I think every business owner should be thinking about. I wanted to help them break out of the bad cycles that make running a business a real grind. For the vast majority of business owners, it's a pretty good outcome if they have a business that makes plenty of profit, allows the business owners to live the life they want, and allows them to keep working with the people who strive alongside them to make the business great.

That's a tremendous outcome, but we've lost that because it's not as sexy as being the owner of the next $100 million mega-business. We've made business about an all-or-nothing sale or an IPO, even though that's a very small percentage of the outcomes and that's not what every business owner wants or really needs.

What's the biggest problem you see in your clients' companies?

Companies forget to figure out what they do better than everyone else and instead they try to match their offerings with what their competitors are offering. In my company, it always made us feel we were playing catch-up or we were somehow defending ourselves, instead of staking out compelling territory of our own that would reach a smaller niche.

It seems like many small companies are almost obsessed with their large competitors.

Almost every business that I encounter is consumed by what their competitors are doing. They're scouring the Internet to see news items from their competitors. Somehow we've all decided that our competitors have the answers and all we have to do is keep up with them.

That's a hard cycle to break. You just keep adding services because you think, "If my competitor is offering them, I have to offer them." You drive home at night feeling that there's so much to do and nothing's getting done and we're just treading water. That mentality—that there's a competitor out there that's looking to take food out of your mouth—doesn't lead to a healthy outcome. What you need to do is take all that energy and focus it on your ideal customers.

Do you recommend more focused targeting in general?

Yes. It became very clear to us that there was a group of clients who valued us, and that we enjoyed working with the most. They were more interested in service than in price. So we began to focus in on time-sensitive, high-value merchandise. That idea allowed us to have some real clarity about the market that we should be serving and move away from our culture being about doing more and more and grinding more out of our staff. Instead, it became more about doing fun things that honored the service culture we had.

Where do companies go wrong on that point?

They take on a bunch of clients because they think they have to, and they jump into large bids without realizing the impact it's going to have on their business and their culture. Those things make your business stray away from what's really true about it, and little by little it becomes a carbon copy of your competitors. After that, you're only competing on price.

Why did you decide to emphasize the basics in your book?

I wanted to get across to other CEOs that it's not about the latest fad, or trying to be so cutting-edge. Instead, it turns out, success is about getting the basics right. If you invest time and money in business basics, they will never fail you.

The other thing I want to emphasize is that business owners cannot lose their sense of purpose. People care about why you do what you do, before they care about what you do. Yet I rarely find a business owner who can tell me why they're doing what they do. They know what they do and they've spent time figuring out their elevator pitch, but very few figure out why they do it. So business owners need to have some sense of passion and purpose behind what they do and they have to get the basics right.

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To Unlock Creativity, Learn from Steve Jobs

This column is adapted from The Innovation Secrets of Steve Jobs: Insanely Different Principles for Breakthrough Success (McGraw-Hill, October 2010).

The company name "Apple" fell from a tree, literally dropping right into Steve Jobs's vision of what a computer should be: simple and approachable. Although Jobs had dropped out of Reed College in Portland, he returned to Oregon periodically to share ideas with like-minded people in a Zen-influenced commune called the All-One Farm where they grew—you guessed it—apples.

On one trip, Jobs made a seemingly inconsequential observation, an innovation with a "small i." However, his idea provides an A-level course in brand identity. Jobs and [Steve] Wozniak had decided to start their own company with $1,000. They just needed a name to make the partnership complete. As Wozniak tells the story, "I remember I was driving Steve back from the airport along Highway 85. Steve was coming back from a visit to Oregon to a place he called an 'apple orchard.' Steve suggested a name—Apple Computer…. We both tried to come up with technical-sounding names that were better, but we couldn't think of any good ones. Apple was so much better, better than any other name we could think of. So Apple it was. Apple it had to be." The story of Steve Jobs and the apple orchard gives us an early glimpse into how Jobs's mind works.

Psychologists have spent years trying to discover the answer to the question: "What makes innovators different?" In one of the most thorough examinations of the subject, Harvard researchers spent six years and interviewed 3,000 executives to find out. According to the Harvard research, the No.1 skill that separates innovators from noncreative professionals is "associating"—the ability to successfully connect seemingly unrelated questions, problems, or ideas from different fields. The three-year Harvard research project confirms what Jobs told a reporter 15 years earlier: "Creativity is just connecting things."

This notion of making creative associations through seeking out new experiences is worth exploring more closely, as it plays a significant role in the way Steve Jobs has generated one innovative product after another, and another, and another. Jobs is a classic iconoclast, one who aggressively seeks out, attacks, and overthrows conventional ideas. And iconoclasts, especially the successful ones, have an "affinity for new experiences," according to esteemed Emory University neuroscientist Gregory Berns.

Jobs doesn't see things differently from the rest of us. Jobs perceives things differently. Vision is not the same as perception; perception separates the innovator from the imitator. Vision is the process by which photons of light hit the photoreceptive cells of the eye's retina and get transmitted as neural impulses to different parts of the brain. Perception, as Berns points out, "is the much more complex process by which the brain interprets these signals." Dozens of individuals saw the graphical user interface at the Xerox PARC facility in Palo Alto, but it was Jobs who [in 1979] perceived it differently. He had an epiphany, a massive jolt of creativity.

The key to "thinking differently" is to perceive things differently through the lenses of a trailblazer. And to see things through these lenses, you must force your brain to make connections it otherwise would have missed. When Steve Jobs studied calligraphy, it was such a novel experience that it ignited his creativity. When Jobs spent time meditating in an apple orchard, he experienced something new and it led to some creative insights. When Jobs visited India in the 1970s, he experienced something radically different from his life in a California suburb. And when Jobs hired musicians, artists, poets, and historians [to build the Macintosh], he was exposing himself to new experiences and novel ways of looking at a problem. Some of Jobs's most creative insights are the direct result of novel experiences either in physical locations or among the people with whom he chose to associate.

Does Steve Jobs see things differently? Yes. Is this skill unique to Jobs? No. You can learn to be more creative as long as you keep in mind that your brain will fight you every step of the way. By pursuing new experiences and thinking differently about common problems, you are asking your brain to expend energy when its natural role is to conserve as much as energy as possible. It's not easy, but by forcing yourself out of your comfort zone—physically and mentally—you will kick-start the firing of synapses, improving the odds of generating new ideas that have the potential of transforming your business and your life.

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Using a Joint Venture to Expand

By Monica Mehta

In an environment where capital is scarce, I urge small business owners to consider collaborating with other businesses to reach new customers or broaden their offerings without the cost of developing additional expertise or hiring more employees. Unlike a merger, a joint venture lets two companies maintain separate identities. They can enter into the partnership understanding that it may be short-lived and predicate the steps to unwind it. To give you a sense of how such arrangements work, I spoke recently with two entrepreneurs who described the nuances and offered their advice.

Scott Stewart, founder of Westfield (N.J.)-based animation studio SpeakeasyFx, pursued a partnership when his TV and film clients trimmed their budgets during the Great Recession. Founded in 2003, SpeakeasyFx built a reputation for high-quality computer-generated animation, winning clients such as Sesame Workshop, which tapped the studio in 2008 to animate Abby's Flying Fairy School, Sesame's first foray into animated Muppets. The series won an Emmy and SpeakeasyFx won accolades for its part. Still, Stewart struggled to keep his staff busy during lulls.

In 2009, he began an informal collaboration with Erin Sarofsky, founder of Chicago-based production studio Sarofsky, to refer new business to each other. The pair had worked together in the past and began contracting with each other on complementary jobs. When a Sarofsky client needs 3D animation or complex special effects, SpeakeasyFx is its go-to resource. And when one of SpeakeasyFx's clients requires design-oriented work, such as in-camera film work, Stewart brings in Sarofsky's team.

Joint ventures make sense when a partner has expertise you don't have or don't want to build in-house. Although both SpeakeasyFx and Sarofsky are production companies, there is little overlap between their offerings. Their sales teams have even conceded that they could gather more business together than they can separately. "Because we each have so much invested into our own identities already, a joint venture offers the best of both worlds. We can still act independently of each other," says Sarofsky.

For 18 months, the relationship has proved fruitful, so much so that the companies are in talks to set up a New York City office together. But sharing a sales staff, office space, and even positioning themselves as a combined production facility means their companies will be more deeply intertwined, pressing the need to formalize their handshake agreement with something inked on paper. "In this economy of increasingly more significant budget reductions, it's important to understand that a handshake should not be taken lightly; the right relationships, even seemingly casual ones, can have a considerable impact on your company's sustainability," says Stewart.

Making the terms of the agreement clear is crucial. "With partnerships, the value is built over time and it is important to agree how that value will be shared," says attorney Robert Goldbaum, partner and head of law firm Paul, Weiss's asset-management transaction team in New York City. "It is rare to find a joint venture where both partners have benefited equally over many years. Without agreeing on the value of the split, it is likely that one partner may ultimately feel the need to change terms or unwind the venture—and will have the ability to do so."

When IBM (IBM) tapped Microsoft (MSFT) in the early 1980s to build an operating system for its computers, the software company gained unprecedented distribution from the arrangement. However, IBM did not share in Microsoft's success. In fact, the hardware giant suffered billions of dollars in losses and considered dismantling the company in the early 1990s while Microsoft was growing by leaps and bounds.

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What Amazon Fears Most: Diapers

In the Gouldsboro warehouse, robots do the heavy lifting Photograph by Danielle Levitt for Bloomberg Businessweek
It is good to be the chief executive of a company that's about to ship 500 million diapers in a single year. For one thing, you get to drive a golf cart as fast as you want in your new 1,250,000-square-foot warehouse.
"Hang on!" says Marc Lore, putting the hammer down.
The golf cart leaps forward, racing through 10-foot-tall canyons of diapers stacked on pallets. At 25 miles an hour, the diaper mountains blur by, here a pyramid of Huggies Little Snugglers with pocketed back waistbands, there a tower of Pampers Swaddlers Sensitive economy size packs. Skyscrapers of Enfamil, Similac, and Luvs Ultra Clean Wipes flash past.
"You could put about 20 football fields in this place," says Lore, CEO of Quidsi, the parent company of Diapers.com' the Internet service that by year's end is expected to ship Diaper No. 500 million. Next to Lore, in the passenger seat, is Vinit Bharara, co-founder and COO. Lore and Bharara, both 39, have been friends since grammar school in New Jersey. Also on board is Scott Hilton, Quidsi's executive vice-president for operations, who designed the warehouse, which is in Gouldsboro, Pa. The place is a third of a mile long; the way Lore drives his cart, it takes him about a minute to travel its length. High overhead, motion-activated lights flicker to life as he speeds along, leaving a sky trail behind as they zoom past the walls of diapers.
Lore can go almost anywhere he wants inside the warehouse. He can duck through its 53 aisles of supplies with about 50,000 different products. He can slip by its loading docks, where trucks are being stuffed with packages destined for 20 states. (The company also has warehouses in Reno, Nev., and Kansas City, Mo.) But there is one place Lore cannot go. He cannot go where the robots are. The warehouse features about 260 robots, working in a 200,000-sq.-ft. expanse delimited by bright yellow paint and filled with square racks of shelving. They are short, orange, rectangular machines that lift and deliver the shelf pallets to human "pickers" at stations around the perimeter. They move in balletic formation, dancing like the magic broomsticks in Fantasia, sometimes stopping and swiveling in place to change direction. They wait patiently for a column of their peers to pass or make orderly lines in front of the packing stations before dropping off their loads. Each robot weighs about 800 pounds and can lift 3,000 lbs. of merchandise.
"They have sensors and they're supposed to stop if they see you," says Hilton. "But it's better to stay out of their way. They're very quiet, and you don't hear them coming."
So Lore avoids robot territory, driving down another canyon and pulling up to a door in a dark corner. Beyond it is an equally impressive space, another 400,000 sq. ft. yet to be used. "Room for growth," says Lore, letting the sheer size of the space do most of the talking. It is easy to understand the message here, and in everything Quidsi does. To survive as a commodity-based retailer you need ridiculous, giddy-making scale—because no matter what you're selling, if you're selling online, you are always, always at war with Amazon (AMZN).
Lore and Bharara did about $180 million in revenue in 2009 and expect to bring in about $300 million in 2010. Just five years old, Quidsi (the name means "what if?" in Latin) is already breaking even in a category that wasn't supposed to work on the internet: Quickly shipping bulky, low-margin commodities. The partners don't make money on diapers, and never planned to. Diapers are the draw that brings in loyal customers who order over and over. The money comes when a shopper throws in one of the other 25,000 SKUs, or Stock Keeping Units, that Diapers.com lists on its site—higher-margin items like brand-name baby shampoo, wipes, and formula. (Soap.com, just introduced, adds another 25,000 SKUs. Lore and Bharara want to have well over 100,000 by the end of next year; they're planning to get into toys, too.) According to the partners, their customers are "sticky," ordering again and again and telling other parents about the service. They are also a surprisingly valuable demographic; many are mothers who don't have time to drive over to Costco because they're working and will spend money to save time.
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Online advertising nears £2 billion

Online advertising in the UK was up 10 per cent in the first half of 2010 to £1.97 billion.

The increase was driven in large part by a surge in video and social network advertising, according to the bi-annual online advertising expenditure study from the Internet Advertising Bureau (IAB), which was produced in partnership with PricewaterhouseCoopers (PwC).

Online advertising now has a market share of 24.3 per cent of the total UK advertising spend. The wider advertising industry also saw a recovery in the first half of the year, with total UK advertising spending up by 6.3 per cent to £8.1 billion.?

Guy Phillipson, chief executive of the IAB, comments: ‘The return to double digit growth in UK online advertising is characterised by increased investment by major brands, particularly in FMCG [fast moving consumer goods] and entertainment. The effectiveness of social and video ads for classic brand building is reflected in these formats enjoying exponential growth.’

The highest spending sector was entertainment and media, which accounted for 14.4 per cent of total online advertising spend in the UK, followed by finance and FMCG.

Despite the continued difficulty in the sector, retail saw increased online advertising from 7.1 per cent of total spend in the first half of 2009 to 8.4 per cent in 2010.? ?Anna Bartz, strategy manager at PwC, says: ‘These figures reflect a sense of positivity in the advertising industry at a time when many other media in the UK have also displayed signs of a healthy recovery.’

The report also highlights a number of driving factors for the recent growth, including the growing number of online users in the UK and an uptake in the use of devices such as smartphones.

UK internet users are now spending 23 per cent of their time online using social networks and blogs, claims the IAB.

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EU maternity proposals to hit SMEs

Businesses will be hit hard financially by European proposals to extend maternity leave.

EU plans to lengthen the period of leave to 20 weeks from 14 will cost small and medium enterprises an extra £7,000, says the Federation of Small Businesses (FSB).

Ahead of the EU vote on the proposals, the FSB is concerned that the change could act as a deterrent for small firms to take on new members of staff.

While the FSB believes a flexible maternity and paternity leave system is paramount, it sees the proposals as adding payroll costs for already over-burdened companies.

Tina Sommer, head of the EU and international affairs of the FSB, says: ‘Small businesses are known to be flexible employers and it is unfortunate that maternity and paternity leave is one of the biggest barriers for them when looking to take on staff.’

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Recruitment on rise

A growing number of companies are looking to increase headcount in order to capitalise on improving market conditions.

The bi-annual Business Tracker survey by serviced offices provider Regus found that a third of respondents from the UK are seeking to recruit more staff.

Regus chief executive Mark Dixon says: ‘The intention to increase headcount is a clear indicator that businesses want to be prepared to grasp the opportunities that recovering markets may throw their way.’

The Regus survey, which interviewed over 10,000 senior business professionals across 78 countries, found that businesses generally in the UK were more positive than they were six months ago.
that interviewed over

On a global scale, 36 per cent of companies are also expecting to expand their workforce, while 41 per cent are still looking to reduce overheads, although not through reducing staff numbers.

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UK recovery on a knife-edge

SMEs are hunkering down as concerns increase about the robustness of the economic recovery.

According to a study of 1,304 members of the Federation of Small Businesses (FSB), the net balance of businesses expecting an improvement in prospects over the next three months has dropped from 16.2 per cent at the end of the first quarter, to 4.2 per cent in quarter two and now just 0.5 per cent at the end of quarter three.

More than a third (38.1 per cent) of respondents also report a decline in revenues in the three months to September and 10.4 per cent of companies actively expect to decrease employment over the next three months.

John Walker, national chairman of the FSB, says: ‘Evidence from this report shows that small firms do not have the confidence to [create jobs] yet and so we urge the Government to ensure that the right measures for firms to grow are laid out.’

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A Utah Incubator Hatches Student Startups

By Sommer Saadi and John Tozzi

Oliver Munday

While in college and working part-time at a specialty market in downtown Salt Lake City buying gourmet chocolates and olive oils, Nick Frappier lined up the contacts and funding to start his own specialty food importer. The 22-year-old fine arts major had been in business more than a year when he realized this spring that he lacked the first clue about how to run a company. "I might have had the groundwork laid, but I had no idea what I was doing," he says.
So when he got his degree in May, Frappier joined the inaugural class at the Foundry, the University of Utah's new business incubator. In one summer his company, A Priori, went from 12 clients to 40 and brought in $93,000 in sales, more than double what he'd made in the first 14 months of business. The college hopes the Foundry's blend of management training and peer mentoring will help hundreds of students turn their ideas into viable companies.
The Foundry, launched in May, has already seen 29 teams create 18 registered businesses that together have generated $220,000 in revenue. (Frappier's company accounts for more than one third.) Among the other successes are software startup Novobi and Sundial Technologies, which is developing a frozen gel-coated spoon used to cool hot liquids. Foundry businesses have already created 22 full-time, paying jobs, including those of 10 company founders.
The incubator is part of a year-old effort at the University of Utah's David Eccles School of Business to "reboot the entrepreneurship program" around practical experience, says Rob Wuebker, Frappier's entrepreneurship professor and the incubator's faculty adviser. During the summer, 66 students working on 29 ventures shared the 3,500-square-foot downtown office. The school's goal: Give young entrepreneurs a network to help their businesses succeed. "Having, say, 15 early-stage companies in one place, there'll be a lot of cross-fertilization of ideas," says Dinesh Patel, managing director of vSpring Capital, a $400 million venture capital firm in Salt Lake City. "For a student that would be a huge advantage."
Eccles Dean Taylor Randall says students' interest in starting businesses has spiked because grads have a harder time finding work with the national unemployment rate at 9.6 percent. "If companies aren't going to hire students, we'll help [students] create the jobs," Randall says.
Demand for Wuebker's entrepreneurship classes on campus is so great that his room typically packs in double the 35 students on the official roster. Everyone who shows up has to work on a real business. In May he and Randall decided to turn a downtown space the university used for lectures and offices into a free small business boot camp to support the startups coming out of the class. "We focus almost all of our energy on resolving the one thing that makes most startups…fail: They can't manage their way out of a paper bag," Wuebker says.
The space, which the school leases for $5,000 a month, has fewer than 20 cubicles and half a dozen offices. The university provides the bare minimum: desks, chairs, meeting space, printers, Internet access, and whiteboards.
Students arrive at the Foundry by 7:05 a.m. on Mondays for an executive meeting where they share problems and offer solutions. Every member has already read the other teams' progress reports from the previous week, due by 6 p.m. on Saturday. Students have 24-hour access, and there's often someone there tinkering in the wee hours. "If you run into a problem, more often than not your colleague is able to troubleshoot," says Patrick Duke-Rosati, 26, co-founder of the six-employee RedFlower, which manufactures the fruit drink Aguas Frescas. At the start of the summer, Duke-Rosati and co-founder Fidel Crespin walked into the Foundry with an idea, but no solid plan. Now RedFlower brings in thousands of dollars each week selling at farmers markets and is in the process of securing shelf space in a Utah retailer with six stores.
Beginning this fall, the university turned the incubator into a year-round program open to students and grads from any university. As the Foundry develops, Randall expects to offer more sophisticated resources such as workshops to build prototypes or kitchens for aspiring restaurateurs. The hands-on approach will remain the same, though. "We've tried to provide experiences that bridge theory and the real world," Randall says. "It's a good testing ground for entrepreneurs, and we're here to help them pass."

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Sales boost for high street

Retailers may have turned a corner as high street sales are up for the third month running.

The Distributive Trades Survey of 20,000 company outlets carried out by the Confederation of British Industry (CBI) reveals that 60 per cent of retailers saw the volume of sales rise during September.

A total of 11 per cent of respondents saw sales fall, resulting in balance of +49 per cent which compares with a figure of +39 per cent last month.

The increase is also reflected in the volume of orders placed upon suppliers (+39 per cent), surpassing last month’s balance of +29 per cent. The CBI says that retailers in footwear, furniture and carpets have seen a particularly strong surge in sales.

Ian McCafferty, CBI chief economic advisor, says: ‘The bank holiday weekend, combined with the tail-end of summer sales have resulted in a bumper period for retailers.’

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Younger workers look to leave jobs inside a year

Workers aged between 16 and 28 lack loyalty to their place of employment, finds research.

According to a study of 401 respondents by motivational consultancy Sodexo Motivation Solutions, more than half of “Generation Y” employees are looking to leave their jobs within a year.

The findings, which highlight younger people’s perceptions of working, reveal a negative perception of call centres in particular, with just 5 per cent regarding such work as exciting.

One in three would rather claim unemployment benefits than work in a call centre.

Some 46 per cent of respondents report that they are not offered any benefits aside from their salary by their current employer, with 43 per cent naming flexible working as the single most attractive job perk.

Clare Moore, communications manager at information services company Wolters Kluwer, says: 'Employers aren't giving payrises because in most cases they can't afford to. Companies should look at non-financial benefits to encourage staff retention, such as improving flexible working and help make the workplace more attractive for employees.'

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Act fast to claim rate relief

Small businesses could miss out on millions in backdated rate relief unless they lodge claims by September 30.

Companies that qualify for Small Business Rate Relief (SBRR) will receive compensation on a sliding scale based on the rateable value of their property.

Any small and medium enterprise (SME) occupying commercial premises between April 1 2007 and April 2010 could be entitled to as much as £5,000 back.

According to commercial property market data provider LeaseholdersUnited, too few business owners are aware they can claim relief.

Andrew Bacon, property advisor for LeaseholdersUnited, says: ‘Unfortunately, most councils are saying nothing about the issue and many are handing out forms that actually prevent businesses from backdating their claims.’

Phil McCabe, media manager of the Forum of Private Business (FPB) says: ‘A simple solution would be to make rate relief automatic for businesses with eligible properties.’

Rate relief can be claimed at http://www.sbrr.co.uk/. Claimants are required to enter local authority details and fax the form before the deadline.

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See Profits Rise

I still play with toys. In fact my office is pretty much covered with LEGO bricks, action figures, tin robots and the like. And, as you might suspect, I still watch cartoons. I think there’s something about being a cartoonist that requires some sort of perpetual connection to childhood.
One day while shopping for groceries I was drawn to a rack of calendars, one of which was a sort of tribute to the old Dick and Jane books. You know - “See Dick run. Run, Dick, run!” And it hit me that those simple books and their simple sentences were a cultural touchstone that I had yet to poke fun at.
Take that simple sentence, superimpose it onto a business meeting and hopefully laugh, reader. . . laugh.

Mark Anderson's cartoons appear in publications including The Wall Street Journal and Harvard Business Review. Anderson is the creator of the popular cartoon website, Andertoons.com, where he licenses his cartoons for presentations, newsletters and other projects. He blogs at Andertoons blog.
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Could Your Company Be the Next Great Franchise Business?

What does it take for a business to be franchisable? According to franchise attorney Harold Kestenbaum, coauthor of So You Want to Franchise Your Business, “a franchisable business is one that is profitable, has the ability to be replicated, and has a documented system that is easy for others to follow.”

I’ll add one other requirement: The business must have something that sets it apart from other, similar businesses.


Do you have a business like that?
Better yet, have you even been on the receiving end of a statement like this:

“You know, you should really think about turning your business into a franchise.”

If you’ve ever heard that suggestion, now’s your chance to go for it and enter The Great Emerging Franchise Challenge, where you’ll have an opportunity to win $50,000 worth of professional franchise services to get you started as a franchisor.
Contest creator Todd Taskey, an entrepreneur for more than 20 years as well as an  investment banker and business finance advisor, has assembled a group of franchise professionals who have “been there and done that” to help you transform your company into the next great franchise.
Two weeks ago, I received a call from Todd in which he asked me if I’d don my robe and be one of the judges for this contest. I told him I’d be honored. (Anita Campbell, CEO of Small Business Trends, was also asked to be a judge.)
I asked Todd about his vision and goals for this contest. He told me, “I wanted a way to attract business owners to the idea of franchising as a way to fuel the growth of their company.  I’ve worked with a few in the past and enjoyed the process very much.”
What would Todd like to see happen because of this contest? “We’d like to identify a few good ideas and give them great feedback on their business. Then, we’d like to identify one great idea and get them started. W e’d also like to get more exposure in the business community for franchising as a viable mechanism to grow a successful business into a national brand.”
Todd hopes to continue growing The Great Emerging Franchise Challenge every year, increasing awareness of franchising even further.
If you’d like to learn more about The Great Emerging Franchise Challenge, including the rules, information about the rest of the judges, and specifics about the $50,000 in franchise development services that the winner will receive, visit the contest website.
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Power Friending Will Power Your Participation in Social Media

We have had no shortage of social media-related book reviews this year (or last year, like Anita Campbell’s review of The Digital Handshake).  Now, thanks to the suggestion of a Small Business Trends book review reader, we were made aware of another book that is useful for those learning how to use social media effectively.
Enter Amber Mac.  A former media strategist with Razorfish and more recently a producer of tech programs at Citytv and G4techTV, Mac has written a guide on optimizing your communication called Power Friending: Demystifying Social Media to Grow Your Business.  I received a review copy, and felt that among the social media books available, it is probably one of the most accessible for small business owners wishing to improve the management of their online communications.
Making friends wherever you go
Power Friending outlines the rules for making online friends through an ABC formula – A for authenticity, B for bravery and C for consistency.  A begins with deciding what your communication is about.

“The first rule of authenticity is that you don’t talk about authenticity.  Well, at least not publicly. The people who achieve success on the Web, whether it’s a 20-year-old student who started a multimillion-follower fashion blog or an 80-year-old grandmother who launched the number-one video blog on YouTube, represent real passion to their audiences.  They don’t harp on about authenticity, but they do present themselves in an authentic way.”

There are segments that explain developing a communications strategy for a single user or for teams. In fact, the teamwork emphasis is where this book shines, such as its list of 10 best practices for a social media team and a brief overview of the advantages co-managing can bring (less work, more variety of engagement, more friending possibilities).
Power Friending also incorporates video media usage, such as adding a B-roll to a video, and mobile applications, media that is growing in  importance.  Mac also writes on applications that will impact the options available for businesses, such as augmented reality (the use of scanning to augment what is seen in the real world) and mobile meetups.  This near-future aspect is something many social media books fail to consider, and I liked how Mac offers the information by not stretching too far ahead of the current state of media.
Learn, learn and learn some more
Power Friending uses examples of successes and failures to educate readers. Small businesses are represented by examples such as Threadless, a custom T-shirt company that through its follower voting on Twitter and Facebook was able to sell 100,000 shirts a month and gained 800,000 Facebook fans.  Other successes include Starbucks and Nissan’s Hypercube effort in Canada, while failures include Bringpopcorn.com’s attempt to gain Diggs.
The failures are analyzed well, with explanations clearly tied to the concepts Mac espouses.  These are easy for small business owners to not only understand, but also use to improve on their own efforts.  I liked the example of Skittles allowing all tweets with the keyword “Skittles” to appear on its site:

“Such an open campaign did not give Skittles the family-friendly image it wanted. With zero guidance, users began slamming the brand and its marketing strategy, a lot of times just to watch their negative notes appear on the Mars-owned company’s home page. For example, Mike Butcher wrote, ‘Skittles give you cancer and is the cause of all world evil.’ Hundreds more people included profanity in their tweets, making some visitors think that the Skittles home page must have been hacked.”

The examples good and bad are clear and often memorable.  Mac’s point throughout Power Friending is to manage the challenges and make the most of the media to create a consistent message.
How it stacks up against other social media books
Power Friending is a small book similar to Chris Brogan’s Social Media 101. It gives an overview of executing social media that differs from 101, yet it does not delve deep into a discussion of measurement like Jim Sterne’s Social Media Metrics.  All three books are an aid to social media, with Power Friending making its place in between. Power Friending aims for and achieves the right mix for social media users who know the basics and now need to develop tools, teams and communication styles without the in-depth measurement discussions that marketers and web analytics specialists typically enjoy.
Despite some personal misgivings about how current a social media books can remain over time, I am convinced the material in this book will retain its value well.  I learned a few new tools along the way, and gained context for my new learning without anything being dumbed down.

A straightforward guide to making friends

Whether you have a community manager in your organization or a team of social media ninjas, this book is perfectly suited for you, with actionable suggestions that will help those responsible take initiative.  Power Friending is a truly awesome guide to communication and social media.
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Convince Overseas Companies to Partner with You

We operate an online freight exchange that handles logistics for road transportation in India. We want to approach freight exchanges in the U.S. and Europe and propose collaborating. How should we position ourselves as we seek these strategic partnerships? —S.G., Mumbai

Reliable delivery of goods is one of the essential components of successful businesses, particularly those operating on a global scale. Your task is to persuade potential partners that your logistics operation is crucial to their success.

Draw up a brief proposal that includes information on your company, your own background, and the business synergies, efficiencies, and competitive leverage that could be created under these cross-border collaborations. Solidify the benefits for both parties, so you can present a win-win scenario, says Peter Zapf, deputy chief operating officer of Global Sources (GSOL), an online resource for importers and exporters.

"Understand how the synergies would benefit both parties," he says. "Such synergies could be either on the customer side—assisting customers that have cross-border freight requirements—or on the operations side, such as having a single development team with domain expertise, rather than two separate development teams," Zapf says.

Your proposal should include several components, including your corporate vision and the principles your company stands for, says Ayse Oge, a small business export consultant with Ultimate Trade, based in Encino, Calif.

"Benefits to the U.S. firms from a complete and rapid entry into this fast-growing market need to be precisely stated," she says. "How much cost-cutting would the U.S. firm generate out of this partnership? How would it affect their bottom line? What new customer acquisition can realistically be expected within the next couple of years?"

If you can bring actual customer contracts to the negotiating table, that will be a powerful draw for the companies you are targeting, says Damon Schechter, chief executive officer of Shipwire, an international shipping and logistics firm based in Palo Alto, Calif. "If you can solicit local customers to look abroad for growth, lots of potential partners will be more than happy to help you grow those customers," Schechter says.

In your proposal, stress your customer service orientation and include some case studies, as well as the competitive advantages you enjoy in your industry. If you specialize in moving particular products—say, apparel or high-value items—make sure you mention that as well. "Specialization is important for logistic companies in the U.S.," Oge says.

Make sure that you research the companies you approach, so that your proposal is savvy and on target with their business goals. You should also think about how you'd like to structure these partnerships. "Are you thinking about selling a stake in your corporation? Establishing cross-holdings between your two companies? Cross-marketing to each others' customers via cash or barter? There are many possibilities," Zapf notes.

Put together a compelling set of value propositions for your prospective partners, stressing the entry you provide into one of the fastest-developing markets in the world. Good luck.

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UK employees in bad shape

British workers are in poor health, with more than 10 million UK male employees overweight or obese.

According to a survey of 8,778 workers by water cooler company Water Wellpoint, two thirds have an unhealthy body mass index (BMI).

Nearly a third of respondents have high blood pressure and 59 per cent have a lower fluid intake than is recommended.

Female workers don’t fare much better, with 44 per cent of women tested having a higher BMI than recommended, reinforcing data showing that more than half (56 per cent) are overweight or obese.

Rory Murphy, spokesman at Water Wellpoint, says: ‘We believe [poor health] is a real issue, both for employers who are trying to tackle sickness absence levels and maintain productivity, and for the coalition government which has made it clear it will cut costs across the welfare system and the NHS.’

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Online Startups Target College Book Costs

By John Tozzi

Shelstad left traditional publishing to start on online book service Ethan Hill
When Dennis Passovoy, a lecturer at University of Texas' McCombs School of Business, selected a new textbook for his Organizational Behavior class last year, his students didn't even have to buy it. They could read the book online for free, or purchase it in several formats, including as an audio book, PDF, or $30 paperback version ordered online that would be printed and then shipped to their doors. "It was equally as good as this $160 textbook, but what really got my attention was if the students adopted the book online, it was free," says Passovoy, who got the new textbook from startup publisher Flat World Knowledge.
Flat World was launched in 2007 by two textbook industry veterans to provide an alternative to expensive course books, such as Organizational Behavior, a standard text from Prentice Hall that lists for $180. "It was so obvious to anybody in the industry that students are running as fast as they can to avoid buying a new book," says Jeff Shelstad, Flat World's 46-year-old chief executive officer. CourseSmart, a joint venture by major textbook publishers including Pearson and McGraw-Hill, distributes digital versions of textbooks for a fee. Six months of digital access to Organizational Behavior, for example, costs $98, according to the venture's website.
Flat World, a 32-employee Irvington (N.Y.) company, is among a wave of startups trying to change the economics of this corner of higher education. "In the last six months there's been a huge explosion in this area," says Vic Vuchic, program officer at the Hewlett Foundation's Open Educational Resources project, which supports efforts to offer learning materials online for free. He says at least two dozen companies now use technology to make learning more affordable and accessible, up from about a half-dozen two years ago.
These entrepreneurs want to use the innovations that have upended other media—e-readers, online video, and social networking—to transform the way people learn. Education "is by far the biggest information industry," says Jose Ferreira, a former executive at Kaplan (WPO) who founded online test prep startup Knewton in 2008. Like Flat World, Knewton hopes to lower costs for students by moving traditional elements of classroom learning to the Internet. The New York company sells online test prep lectures with technology that tailors lessons to individual learning styles. More than 10,000 students have taken Knewton's classes, and Ferreira is talking to publishers and colleges about delivering textbooks and lessons via its technology.
The backlash against rising prices is giving a boost to the startups. Entering freshmen this year will pay 32 percent more for textbooks than the class of 2010 did four years ago, according to Bureau of Labor Statistics data. While Flat World makes no money from free versions, Shelstad says about half of students in classes that use the company's books make some type of purchase. (In classes using traditional textbooks, about 70 percent of students buy the book, he says.)
Colleges also increasingly offer course materials online. Richard Ludlow founded Academic Earth two years ago to aggregate videos of university courses. "Since we've started, more and more universities have added to the open courseware movement," says Ludlow, a 24-year-old Yale graduate. The site now offers 150 free courses and has 300,000 unique visitors monthly, more than half from outside the U.S.
Knewton and Flat World also hope to cater to growing demand abroad. Students in India, South Korea, and Malaysia are among the 70,000 who will use Flat World books this year, and a quarter of those taking Knewton's most popular test-prep program, the GMAT exam for graduate business schools, come from outside the U.S.
Education is "a massive global market undergoing a huge amount of change," says Bo Fishback, a vice-president for the nonprofit Kauffman Foundation, which promotes entrepreneurship. In July, Kauffman announced a program to foster 20 education startups with intensive assistance next year; more than 1,200 have applied. Fishback predicts more companies will seek to make education affordable because "the fundamental cost of what it takes to get a four-year degree is just growing and growing."
The bottom line: Entrepreneurs want to use technology to change student behavior and make education more affordable and accessible.
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Control the cloud

(Fortune Small Business) -- For years the online-software company HotSchedules had its head in the clouds.
The Austin company had invested in cloud computing -- that is, it paid a monthly fee to lease computer storage space and computing power on an as-needed basis from a third-party provider, not unlike the way a homeowner rents electricity from a local utility. But conflicts arose because HotSchedules employees were not allowed to set foot inside the off-site facility.
"Our clients like having their private data housed and maintained by us," says Matt Woodings, HotSchedules' chief technology officer. Poor customer service was the last straw. HotSchedules turned to virtualization.
Virtualization uses software to divide one physical server into multiple "virtual" servers. Each virtual server runs as an independent machine with its own operating system and applications.
Of course, you still need to run one physical server, which typically costs more than cloud solutions. The downsides of cloud computing include security risks and potential outages (see "Supercomputers for Hire").
Piggybacking on cloud computing's cachet, some marketers are describing virtualized servers as "internal clouds" or "private clouds." But don't be fooled: There's nothing cloudy about making your servers do double, triple or quadruple duty.
Save Money: Virtualization has helped HotSchedules manage the expenses of its exponential growth.
Since deploying Microsoft's (MSFT, Fortune 500) Hyper-V virtualization technology in 2008, the company has slashed hardware expenditures and stabilized electricity costs while delivering maximum uptime to 480,000 users. At the same time, its revenue has grown 80%. (The company can't say how much of that growth is attributable to virtualization alone.) Rather than invest $60,000 in brand-new servers, HotSchedules consolidated its existing 42 physical servers down to six.
"Once we virtualized, we were able to stabilize our monthly expenses," says CEO Ray Pawlikowski. (The company pays an average of $12,000 a month in energy bills, and Pawlikowski estimates that the sum would have doubled if HotSchedules had added hardware to its data center.)
Safety First: Virtualized servers also tend to be more stable.
Just ask Robert Gawne, technology operations manager at Gradient Analytics in Scottsdale, Ariz. In 2006 one of the research firm's in-house servers crashed, rendering the company's data inaccessible for two full days.
"It took us almost two weeks to get back to production-ready status," recalls Gawne. "There were a lot of sleepless nights, and we got a little egg on our face."
After ruling out cloud computing because of security risks, the company could have stocked up on servers to store its mix of predictive data models, stock performance systems and analytical tools. But that would have cost nearly $255,000 in installation, support and hardware expenses. And Gawne estimates that moving production off-site to a data center would have cost his company nearly $140,000 in new servers, plus $4,700 a month in facility rental fees.
Today, Gradient relies on VMware's virtual Infrastructure 3 to safeguard against hardware and operating system failures within its web of virtualized servers. The tool is designed to instantly detect system failures and automatically transfer data from one virtual machine to another in the event of a technical snafu.
With virtualization, Gawne says, Gradient realized a 70% cost savings over moving its production off-site.
Virtualization can save you a lot of money, but it's also complex stuff. Analysts caution that you must make sure your IT department can handle the switch first.
"You do need to have some in-house expertise for virtualization," says Ray Wang, a partner with the Altimeter Group strategy consulting firm. "But in the end you're using much less storage, less capacity and fewer processors."  
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SMEs worried about cost of pension reform

The majority of small businesses feel auto-enrolment pension reforms will drive up costs.

According to a survey by the Association of Consulting Actuaries (ACA) of 404 smaller employers, 53 per cent of respondents say the government reforms set for 2014 will ’add significantly to costs’.

Companies not currently providing pensions say they do not principally because of cost (96 per cent) and economic conditions in their specific sector (82 per cent).

Smaller firms say the principal reasons why employees do not join existing schemes is, again, cost (84 per cent), a preference to spend (72 per cent) and a disillusionment with pensions (69 per cent).

Despite the concerns about costs, more than half (54 per cent) of small firms say they support auto-enrolment.

ACA chairman Stuart Southall says: ‘The cost of pensions to both employees and employers is the big issue that has prevented the extension of pension provision to date in the sector.’

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Patent Reform: High Stakes for Small Biz

By John Tozzi and Susan Decker

Ben Cappiello thinks he has a better way to make intrauterine contraceptive devices. He's hoping to patent his idea, but when his application gets to the U.S. Patent and Trademark Office in October, it will land at the bottom of a stack of more than 700,000 others. Cappiello can expect to wait nearly three years for a ruling, which could make it harder to raise money. Venture capitalists are wary when "there are still a lot of question marks about your intellectual property," he says.

The Patent Office concedes the system is broken and is proposing changes that would give applicants more control over the timing of the process. One shift would let applicants pay more to jump to the front of the queue, guaranteeing a decision within a year. "We are currently operating the most senseless system of delayed and delinquent examination imaginable," David Kappos, the patent agency's director, said at a public hearing on the proposal in July. He hopes to have the plan in place next summer. Congress will have to approve some of the changes.

The Patent Office says the fee for fast-track review would be "substantial," though it hasn't yet announced a price. The average patent application fee under the current system costs $1,000, Kappos says, though small businesses and individuals get a 50 percent discount. (That's not counting attorneys' fees of $10,000 or more.) Kappos says smaller companies could get a similar discount on the price of fast-track examinations.

Not all applicants want a speedy review. The new system also would give entrepreneurs the option to put off examination for up to 30 months. That would let companies avoid paying the full fee when they file to patent early-stage ideas that might never reach the market, because the bulk of the fees are due at the end of the process. (If a patent is granted, the protection is retroactive to the date of the filing.) Small businesses have expressed interest in both the fast-track option and the potential to delay review, says Kate Reichert, assistant chief counsel at the Small Business Administration Office of Advocacy.

"If a small business has a patent and its business is going to be based on that patent," she says, "it would be very, very helpful to get that processed quickly."

The bottom line: Letting patent applicants speed up or delay examinations could help small businesses if fees don't put the fast-track reviews out of reach.

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Why The Social Web Is Like Falling in Love

“I don’t have enough time!”
Those five words are uttered over and over by small business owners, entrepreneurs (and, believe it or not, big, scary brands) when it comes to maximizing this new world of online marketing and brand building.

Variations include:
“I don’t have time to create really interesting content.”
“I don’t have time to visit blogs and forums and become a part of the conversation.”
“I don’t have time to reply to my followers on Twitter.”
What is interesting about this complaint is the word time used to be replaced by “money.”
Pre-social Web days? Buy some ads. It took money, but far less time. Hire some awesome creatives and watch the magic happen. However, this was never really a (good) option for small business owners.
The problem is many businesses have taken this “pre-social Web” approach to the social Web–and it just doesn’t work. What I mean is hiring an agency to tweet on your behalf or come up with “campaigns” (some agencies are doing it right and spending their effort advising clients, as opposed to doing it for them).
There is no beating around the digital bush. If you want to build a brand online (or bring a brand online) for the long run, it takes a lot of time, effort, drive, creativity, passion and patience (along with personality and caring).
Here is the good news, though: The social Web offers a huge advantage for hustling entrepreneurs as opposed to big brands. Everyone has a shot at building a community and/or becoming a trusted resource online….as well as having a thriving business (what could be better?)
The social Web is similar to the dating world. I’m sure you have heard stories (or experienced them yourself) of the guy (or girl) who casually dates but tells their date that right now they “don’t have time for a relationship.” When probed, it is easy to come up with excuses:
“I’m really focused on my business.”
“I travel a lot.”
“I like to spend my time naked watching Pokemon.” (awkward)
But suddenly, this person meets the right guy or girl and is head over heels in love! Suddenly, he or she does have time for a relationship and is married a year or two later.
Whoa! Where did that time come from? Did it just magically appear out of nowhere?
Or maybe it’s this simple:
We make time for things we care about.
We make time for things that are valuable.
We make time for things when we want to make time for them.
My suggestion?
Simple: Make the time. View brand building in the social Web era as a long-term relationship. You have to put the effort in, knowing that the fruits of your labor are down the line (not today, not tomorrow, but later).
Take the time to strike up new relationships.
Take the time to create interesting content, whether it be text, video or audio (or a combo!)
Take the time to interact and make small talk with people.
Take the time to answer your e-mail.
Take the time to reply to your messages.
Once you start seeing the value of the social Web, it will be hard to remember where all that time was going in the first place.
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