Krispy Kreme Releases the Atkins Donut

Krispy Kreme has released a new donut filled with Atkins friendly ingredients like... lots of meat. At least, that is what ScrappleFace is reporting. Scott Ott is one of the few bloggers who can come up with good business humor.

Dell - Upping Margins in a Commodity Market

It seems as though Dell always surprises me. Many people consider the PC market at near commodity status, yet Dell has decided to raise prices to get better margins.

Dell has outfoxed HP before, but this time it's using different tactics. After three years of slashing prices to grab PC market share, Dell is backing away from the industry's bloodiest price wars in a bid to goose its profits. Since July, the company has raised prices as much as 13% on some desktops, including its low-end ones, and held pricing firm on most others, according to researcher Current Analysis Inc.

If Dell stays the course, could this mark a significant shift in PC pricing after years of downward pressure? Most experts say that's unlikely since Dell's rivals are locked in a brutal battle at the bottom of the market and in no position to raise prices. Budget-price PCs, says Chuck May, vice-president of desktops for Gateway, "are critical for driving sales."

But whatever its rivals do, Dell's shift is already helping the bottom line. While raising prices has slowed sales growth -- second-quarter unit shipments were up just 19%, the slowest rate in more than a year -- revenues rose 20%, to $11.7 billion, while net income soared to $799 million.

Dell is an amazing example of a company that continually changes strategy, yet is successful each time. That means the people at Dell are masters at execution, which I think is the difficult part of any business. The interesting thing about this move is that many companies focus more on market share than anything else, yet Kevin Rollins knew that margins are just as important. That is the tough part of running a business. So many people focus on one number, when there are really many factors that must be considered together. Sometimes the hardest part is to decide where to position yourself in the market, and then focus on that niche. If you are trying to be the high-end provider, you won't have the highest market share. If you are trying to be the low price leader, you won't have the margins that others have.

Myths and Lies about Taking the Risk out of Entrepreneurship

Many people who want to start a small business will read some books, visit the local small business center, and check out sites online. These venues will be very quick to tell you about all the ways you can reduce your risk.

First they will tell you about LLCs and how they will protect your assets. What they won't tell you is that any and every bank you go to, plus every vendor you do business with, will make you sign a personal guarantee so that you can't hide behind your LLC. Most people going into business for the first time don't realize this, and I wonder why everyone continues to discuss the asset-protecting advantages of the LLC.

Secondly, and worst of all, they will tell you that SBA is there to help you out. Yeah right. SBA is a program that supposedly encourages entrepreneurship by having the government guarantee 80% of the loan so that the bank be more aggressive in lending money to small business. But the banks still want you to put down the 20% that isn't covered, which is difficult for some startups. Plus, if you do have any assets, SBA will expect you to put them up as collateral. So, it only benefits people who have at least 20%, but not much more.

This has caused my partner and I to undertake a very, um... interesting financial maneuver. I didn't have the money to start a business, and didn't have the 20% the banks wanted either, so I took on a partner. Now, since we overshot our startup costs by about 100K, he has assets that are being used to guarantee the loan that he had planned to use to start another business. We need working capital and are almost tapped out, so I am going to apply for an SBA loan to buy him out. That will be the most difficult step in the process. If I can get it, he will turn around and (now that his assets are free) loan 100K back to the company. No payments will be paid for 3 years, and at that time it will be convertible into equity if he chooses (which he probably will). I'm sure we will run into some legal and tax challenges for this, but ultimately we just want to free up some money.

Here is what I don't understand. In one of my finance classes in college, we learned the four Cs of credit (although some people teach 5 Cs). The professor said that the most important of them was character. He said that more than any other variable, character determined whether someone would pay back a loan. Now, I am the kind of person who believes so strongly in capitalism that I think stealing money is one of the worst crimes someone can commit. I refuse to play the lottery because when I am very wealthy someday I don't want people to qualify it by saying "well, he did have all that money from the lottery (or parents or whatever)." So what I don't understand is - why can't I get a business loan that says if my business fails and I can't pay back the loan it will be docked from my pay for the rest of my life? I'll take that. Because if I borrow money and squander it, I would feel so guilty about that I would pay back every cent if it took me 20 years. Why can't I take a character test and get a loan? Why do they basically just look at my assets? But enough ranting. If SBA really wants to help encourage small business startups, they should seriously change their policy. And so should all the other books and websites that propel these myths about how easy it is to get funding and legal protection. I have to agree with a startup CEO who spoke at an event I attended a few years ago. He said there is only one way to get money for a new business if you don't already have some - beg. And keep at it.

Job Applicant Jailed

On the news this morning was the story of a guy who used to play basketball at a local college and got arrested for robbing his second gas station. It is disturbing to me because he is someone who applied for a job with us three months ago. He had no relevant skills, and we weren't hiring at the time, but it was obvious that he needed something badly. Now I feel guilty in some strange way, even though I know that this was not my fault. Maybe it isn't guilt as much as sadness. I feel sad and sorry that he was made it through college with a poor GPA, a useless degree, and without obtaining any decent interviewing skills. I feel bad that he had to rob two gas stations to make ends meet (at least that is why I assume he did it). It is a strange intersection of events, and an even stranger feeling being somehow related to it all.

Plaxo Customer Feedback

I'm sure many of you have tried Plaxo, the contact update system that works with Outlook. Well I have recently had problems with it and decided to uninstall it, make sure the problems disappear, then reinstall it. When I ran the uninstall, a box came up that asked me to type in some feedback about why I was getting rid of Plaxo, and what they could do better. Then I could "send feedback" or "skip" to the uninstall. It is the first time I have seen something like that, but I like the idea. Plaxo gets feedback when they need it most, and customers get a chance to vent about why they are uninstalling.

Crowds: Their Wisdom and Delusion

Barry Ritholtz has a nice post on two books that look at the wisdom and the delusion of crowds.

New Business Venture

My most recent venture is almost to the breakeven stage. It's growing fast and things are falling into place, so I'll probably start writing more detailed information about it soon, as I start to work less on it. My next project is already in line. It is a dramatic departure from the kind of thing I have been doing. We are in the market research stage, and so far things are going well, but I need to talk to someone who has a high position with a grocery or retail chain. Does anyone out there work for or know someone in a management position at a WalMart/Target/Kroger/Publix or some similar store that might talk to me for a half an hour? If so, please drop me an email.

Eradicating Poverty Through Profits

C.K. Prahalad has written about a bold new idea to fight poverty using profits.

“IF WE stop thinking of the poor as victims or as a burden and start recognising them as resilient and creative entrepreneurs and value-conscious consumers, a whole new world of opportunity will open up.” That “simple proposition” begins a controversial new management book that seems destined to be read not just in boardrooms but also in government offices. “The Fortune at the Bottom of the Pyramid. Eradicating Poverty Through Profits” (Wharton School Publishing), is essentially a rallying cry for big business to put serving the world's 5 billion or so poorest people at the heart of their profit-making strategies. It has already been praised by everyone from Bill Gates—“a blueprint for fighting poverty”—to a former American secretary of state, Madeleine Albright—“if you are looking for fresh thinking about emerging markets, your search is ended.”

While some on the left may deny that this is possible, those of us who have seen business lead to many win-win situations know that this is exactly the kind of thinking we need to see more often. Here is some more detail about Prahalad's thoughts.

He is a fierce critic of traditional top-down thinking on aid, by governments and non-governmental organisations alike. They tend to see the poor as victims to be helped, he says, not as people who can be part of the solution—and so their help often creates dependency. Nor does he pin much hope on the “corporate social responsibility” (CSR) programmes of many large companies. If you want serious commitment from a firm, he says, its involvement with the poor “can't be based on philanthropy or CSR”. The involvement of big business is crucial to eradicating poverty, he believes, but BOP markets must “become integral to the success of the firm in order to command senior management attention and sustained resource allocation.”

Mr Prahalad reckons that there are huge potential profits to be made from serving the 4 billion-5 billion people on under $2 a day—an economic opportunity he values globally at $13 trillion a year. The win for the poor of being served by big business includes, he says, being empowered by choice and being freed from having to pay the currently widespread “poverty penalty”. In shanty towns near Mumbai, for example, the poor pay a premium on everything from rice to credit—often five to 25 times what the rich pay for the same services. Driving down these premiums can make serving the BOP more profitable than serving the top, he argues, and points to a growing number of leading firms—from Unilever in India to Cemex in Mexico and Casas Bahia in Brazil—that are profiting by doing precisely that.

Ultimately, profits aren't made by screwing people out of their money. Profits come from solving customer problems and meeting customer needs. Any market with unmet needs and/or inefficiencies in process is ripe for someone to come in and make profits while still providing good value to consumers. I hope this book starts to change the thinking patterns of society. The best thing that could happen to those in poverty is that we unleash the power of capitalism to raise their standard of living.

Getting Great Performance From Employees

Here is a good piece about getting better performance out of your employees.

It all sounds so sensible: Expect the best from your employees, and they'll give you their best—a phenomenon that J. Sterling Livingston, founder of the Sterling Institute, discussed in his seminal 1969 Harvard Business Review article "Pygmalion in Management." On the other hand, expect little from employees, and they'll give you meager performance in return—what INSEAD professors Jean-François Manzoni and Jean-Louis Barsoux have named the set-up-to-fail syndrome.

But the interplay between managerial expectations and employee performance is more complex than these commonsense maxims suggest. To be sure, expectations exert a powerful impact on an individual's performance. Yet managers who believe that they've done their job merely by defining and declaring high expectations—without involving employees in the process—will likely get the same poor results that bosses with low expectations receive.

We've all read The One Minute Manager, which really kicked off the whole management-by-goal-setting thing (at least I think it did). It was followed by a million other books singing the praises of setting goals. Surprisingly, lots of people still don't do it. Unsurprisingly, for the people who do, it doesn't always work. Employees have to be involved in the process so that they understand the goals and see them as realistic. But goals, like everything else, can be highly situational. Some things are difficult to quantify, but easy to qualify. In that case it comes down to training.

I have sales training twice a week, goal setting/discussing meetings once a week, and skill specific meetings the other two days. It seems like a lot, but if I keep presenting new material, practicing old skills, keep them on their toes, and make it fun and interesting, they will follow along. So far, I've taken people who hate to sell and at least made them half way decent at it. And that problem employee I wrote about a few weeks ago? He has actually been coming along nicely. If he keeps it up, he may keep his job after all.

Fat Burning Microwave

This is an interesting new product.

Unveiling its invention Monday to the media, Sharp said the microwave generates "superheated steam" at a temperature of about 572 degrees Fahrenheit, hot enough to melt fat and reduce oil and salt from steak, chicken, fish and other foods.

Osaka-based Sharp said the product was developed to address a growing awareness among consumers about the need for a healthier diet, especially with obesity rates climbing to worrisome levels in many countries around the world.

So if you put something like a McGriddle in this microwave, do you get anything back out?

Carnival of the Capitalists

The latest CotC is up. Be sure to check it out for some great posts. Next week will be at New Dog Old Trick. Send emails to capitalists-at-elhide-dot-com by Sunday evening. For more info, check out the Cotc Homepage.