Mail: July 2002
Kids today, with their piercings, their loud music, their Darwinian business instincts! In May's FYI column, " My Son, the Downsizer," George Gendron related his dismay (or was it pride?) at watching his son Zach, age 7, rightsize an imaginary business he had built using Sim Theme Park, a popular PC game that lets users operate their own versions of Disney World. Among Zach's hard-nosed capitalist wiles: the liberal use of pink slips, price gouging, and surveillance cameras to watch workers' every move. Are such traits innate or acquired, and if acquired, from whom? We shudder to think.
Intro. to Econ.
People at younger and younger ages seem bitten by the business bug. Dorm-room arbitrage, anyone?
As a nearly 20-year-old college student, I have only recently discovered the joys of RollerCoaster Tycoon, a game similar to Sim Theme Park. My sister bought it for me for Christmas, and I spent the second half of Christmas break going through the same cycle as Gendron's son. First, I tried for intensity with my roller coasters but quickly realized that continuous seven-loop runs resulted in large quantities of undigested hot dogs' being deposited near my ride exits.
Now that I've converted several guys in my dorm to the game, we've settled down into good businessmen, doing our best to maximize profits. As we all head out for pizza, it's not uncommon to hear someone say, "Hey, I paid off all my loans and have 150 grand in the bank today!" Sometimes I wish the money were real. Thanks again for the article. I'll be showing it to my fellow tycoons.
Another Driven Spring Chicken
What's with such serious college students these days? With all these junior CEOs, who's doing the keg stands? This one wrote to applaud Gendron's March FYI column.
A downturn, with its less expensive advertising and office space, is often thought of as a good time for a start-up. Recently, people have been encouraging entrepreneurs to start businesses because of the economic slump and out of a sense of patriotic duty. I applaud Inc for standing up and letting people know that such an idea not only may be misleading but also may further weaken the economy. Demand for many goods and services is low. Customers aren't responding to low prices as they used to. Also, as Gendron pointed out in his column, many corporate officers are wary of working with new companies and selective in choosing their suppliers and service providers. Since most small companies target business-to-business markets, low start-up costs aren't enough to offset the recession's harsh environment. Your honesty with entrepreneurs is real patriotism. I hope you will continue to take helpful, commonsense stands on important issues.
Michigan State University
East Lansing, Mich.
Money for Mensches
Civic-minded? Check. Need money? Check. Then community-development venture-capital funds could be right for you, according to Kate O'Sullivan's " The Bucks in Your Backyard" (Capital, April).
During the recent venture-capital thrust into Internet technology, communications, and biotechnology, we have almost forgotten that venture capital has its roots in core industries. Community-development venture capital, which specializes in such basic investments, has long deserved to be in the media spotlight for its potential and its successes. CDVC offers the potential for sustained job growth and the stabilization of communities through the use of "patient capital." And when compared with its profit-focused venture-capital relative, CDVC offers a compelling success story of financing, business-plan analysis, and support. I commend O'Sullivan for a well-written article.
Charles B. Jones Jr.
The Shasta Corp.
Joseph Rosenbloom's 60-Second Business Plan (May) featured GarageTek, a start-up hoping to make it big on its "garage organizational system." But the company's strategy is all wrong, says this marketing consultant.
GarageTek may be shooting for the wrong target customer by selling its system through builders. Although builders can certainly sell services to home buyers, most people buying $350,000-plus homes (GarageTek's avowed target customer) will not fully appreciate the benefits of the system. People who buy houses in this price range are likely to be moving from a small home into a larger one. The increased space of the new home will provide more storage area and will lessen the need for the GarageTek system. The true benefit of the product comes from turning a garage with many years' worth of junk into a usable space. Such a transformation can best be realized in an existing home that's packed with stuff. My advice to GarageTek: focus your marketing efforts on people who have outgrown their home but are not going to move up.
Strategic Marketing Consultants
House of Correction
In Emily Barker's Finance column " Cheap Executive Officer," in the April issue, we misinterpreted the sign on the wall of Rick Sapio's office, which reads Profit = Revenues/Expenses. The sign is meant to convey that an increase in revenues or a decrease in expenses translates into increased profits.
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Update: Small Fried
Subscription computing was going to end IT torture.
Like lots of ideas hatched in 1999, this one now sounds too good to be true. Imagine paying a monthly bill for, and never giving a second thought to, your computer network, just as you do for your electricity. "Subscription computing" promised to deliver big-company IT on a small-company budget. So why is a service tailor-made for entrepreneurs now marketed only to corporate types?
Back in March 2000, Inc Technology first looked at the two companies that were pioneering the industry. Investors endowed those start-ups, Everdream and CenterBeam, with a total of $245 million. The similarly named rivals offered small companies new computers, servers, and networking equipment; software licensing; nightly hard-drive backups; 24-7 support; and Internet access -- all for a per-employee fee of about $160 a month.
Unfortunately, says Russ Rive, who cofounded Everdream with his brother, Lyndon, "the marketing cost of selling a new concept like this to small businesses was something we realized was beyond our financing abilities." Today both companies are concentrating on the local branch offices of large corporations as their hot sales prospects.
It's not that they didn't try to penetrate the fragmented small-business market. CenterBeam pushed direct mail, and Everdream unleashed a provocative advertising campaign and partnered with computer resellers that had already sunk their hooks into entrepreneurs. But neither company had the resources to target the most profitable customers with intensive data mining, like Staples, or a ubiquitous presence, like United Parcel Service. Even big companies have struggled to crack the entrepreneurial nut: both Hewlett-Packard and MicronPC rolled out subscription-computing for small companies in the past two years, only to retrench.
Despite those setbacks, tech mavens still believe that eventually we'll all pay monthly for IT equipment and services. "That will be the model of computing 5 or 10 years down the road -- with lots of ifs, ands, or buts, and a few minor cracks the size of the Grand Canyon," says Ron Silliman, senior analyst at Gartner Dataquest, an IT-research group in San Jose, Calif. Regional vendors, like eFrame Technology Solutions in the Midwest, Mindshift in Virginia, and iReadyWorld in the Southeast, are convinced that small is beautiful. And Compaq is also taking another stab at the market.
That's no consolation to those who tried it first. "Quite honestly, it was a mistake," says Steven Bird, a cofounder and general partner at Focus Ventures, in Palo Alto, a CenterBeam investor. He adds that subscription computing is not the only idea that entrepreneurs have pooh-poohed of late. "I bet a quarter of our portfolio broke its pick on small businesses, with no success," he says. --Jill Hecht Maxwell
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