Expanding Your Business? Too Many Fail Because They Don't Get the Right Partner!

So many people have a great idea or they run a successful small business that it seems a no-brainer that they should expand and make more money with their service or product.

But when they do expand, they find that it kills their business. Of course there are a myriad of reasons why expansion of business can kill off a good idea or a great business, but I think one of the most common and avoidable errors is that these people who decide to expand choose the wrong partners.


Specifically, they choose someone they like or can get along with over the right person for the job.

Let me give you a good example. I have a friend in Hollywood who is a music producer and he does great work. He tells me that he is always looking to expand and grow his business, but when he does, he fails. He is an artist and has a reputation for being a genius creative mind. He is frustrated at not being able to expand and make more money. He wrote to me for advice and wants to know how he can take what he does and make more money with it. 


Here is how I explained this to him:


You are an artist. You shouldn't be expected to do the business part of this stuff. You need a partner.

The problem? Say a guy runs a family Italian restaurant. He thinks about making it a chain. Who does he hire? A friend who is interested in Italian food.

Bad choice.

He should hire someone who doesn't give a hoot about Italian food, but only cares about running restaurants at a profit. This person doesn't (and shouldn't care) about what kind of food it is. That is the concern of the first partner.

The first partner, the artist or craftsman here, is concerned with taste, aroma and authenticity. Most probably he is a cook.

The cook needs at least a business man to handle the books and figure out ways to take the cash intake and turn it into profits. 

The mistake that almost all people make when they expand their business (and fail) is that they hire their friends or people of a like mindset. For example, the Italian food chef will hire another guy who loves to cook Italian food (you know what they say about too many cooks in the kitchen?)

The first partner hires their friends (who are artists or craftsmen like themselves) who are great for cooking food, but terrible for handling books and financing. And that's where they set themselves up for failure.

When people want to expand and succeed in their business, they need to hire people with a different skill set than themselves; not always "pals" or "yes men" or people of like minds.

Get it?

You need to find that sort of person.

So, in summation, if you are an artist, craftsman, cook, designer, musician, producer or creator, when you want to expand your business, hire a businessman who has a coldly objective view of your work. If you want to take that mom & pop hamburger stand you have and turn it into a chain restaurant, do not hire a craftsman, hire a businessman who knows how to run a restaurant.

There have been very few people in history who could do both the creative side of business and the "business side" of business... Off the top of my head, I can think of Michael Jackson, David Bowie, Steve Jobs...

You need a good partner. Find one. 

Frankfurt Schoolgirls - Celebrity Twist

Will Amazon in USA Crash? How about Amazon in Japan?

UPDATE BELOW!

Recently I have been hearing lots of news from industry insiders that say that Amazon in Japan is on shaky ground and that their share prices in Japan are way over valued when compared to their profit / loss spreadsheet.

Well, I'm not exactly sure about that (not nearly as sure about Amazon as how sure I am that Yahoo Japan is royally messed up) but I do know that Amazon in the USA is not all smooth sailing. One big reason Amazon in the states is in bad shape is because they operate on such a very thin profit margin. This thin margin does not allow for too many mistakes. That's all well and good but there's another huge problem for them and that is sales tax.


In the United States, sales tax is decided by states. Until recently, Amazon has skated around the sales tax problem but, as government budgets get tighter and tighter many states are clamping down on Amazon.


Until recently, if hit with the threat of a tax bill, Amazon would just pull up its roots and close all the businesses operating from that particular state, but now, more and more states are putting the foot to the pedal and demanding payment. How much longer can Amazon keep running away?


Mish Shedlock recently ran a story about this very subject:

Amazon May Cut Ties to California Over Tax Issues; Texas Distribution Site Closed Over Similar Issues Last Month; Litigation Issues Move to Forefront

Cash strapped states are furious with Amazon.Com over sales tax collections. Several states passed laws or have sent Amazon bills. Amazon's response in every case so far is to leave the state.

Online retail giant Amazon.com will close its suburban Dallas distribution center amid a dispute with the state over millions in uncollected state sales taxes, The Associated Press reported Thursday.

The AP obtained an e-mail Thursday sent to Amazon employees by Dave Clark, the company's vice president of operations.

Clark wrote that the center in Irving will close April 12 because of the state's "unfavorable regulatory climate."

Last year the Texas comptroller's office sent Amazon a demand for $269 million in uncollected sales taxes, plus penalties and interest, from 2005 through 2009.

The problem with these Sales Taxes though, is not as simple as it seems on the surface. A lot of this problem is not because of locations of Amazon offices or distribution centers; a lot has to do with locations of Amazon affliliates.  For example, even if Amazon doesn't have a distribution center or offices in, say, California, if an affiliate recommends a book on a blog like this with an Amazon link to buy that book, and that affiliate is located in California, then you can see where the problem begins. The state of California considers that a sale transacted in California.

That's where the trouble starts.

Amazon has had the same problems with North Carolina, Hawaii and Rhode Island. With state governments finding it harder and harder to fill their coiffures and pay their bills, it's only a matter or time before more and more states demand that Amazon start paying the bills. 

Paying those bills will probably kill Amazon as many of them will be past due for delinquent sales tax revenues and the amounts are in the hundreds of millions of dollars. 

The Market Ticker reports in "The Upcoming Crash of Apple and Amazon":

Amazon will also blow up; it shares Netflix's former screwball P/E (currently 101.)

And when both go, and they will, the Nasdaq will collapse since these two stocks are an outrageously disproportionate piece of the index.

Why do I put this forward?

Let's deal with Amazon first, since it's the simpler case.  Amazon's primary "lever" is the ability to play around the edge of the sales tax system.  This gives it an instant 6% (on average) price advantage over everyone else, more than enough to offset the shipping costs (which you pay in any event; whether shipped directly to you or to a retail store, you still pay for it in the product price somehow.)

But that sales tax loophole is going to close.  Over the next few years states will find a way, as the revenue shaft is getting out of hand for them. 

Now here's the problem: Amazon has a 2.58% (ttm) profit margin and a 3.14% operating margin.  This is less than the benefit they get from evading the state sales tax system.

In short, this is a firm that only exists because of its ability to evade that tax structure.  When, not if, that ends the company is a literal zero.

That sounds really bad for Amazon in the USA. Now, the question for those of us in Japan who love Amazon.jp; will Amazon Japan survive? Well, Amazon Japan has a different set of problems than Amazon in the USA does. In the USA, sales tax is decided by different states. In Japan, sales tax is uniform nationwide and charged by the central government.

Amazon Japan has problems with the many competitors in Japan. At this time, some items on Amazon are cheaper than competitors and others are not. In my opinion, Amazon's best advantage is free shipping.

But with sales declining across the board and talk of a doubling in sales tax in Japan in the very near future, Amazon Japan's future looks to be an interesting ride.

UPDATE! A Japanese user sends in a very interesting piece on Amazon Japan avoiding paying sales tax:


「僕がAmazonを使わなくなった理由」"Why I just can't use Amazon anymore"　http://site-ichijo.net/blog/archives/date/2010/1011-231855.php


The article is in Japanese but you can get a simple Google translation here: http://translate.google.com/?hl=en&tab=mT

The Smartest (and Most Profitable) Business in Japan?

Today, you won't read about the company I am going to tell you about in magazines about business or the economy... You won't see news reports about them on TV shows about profitable businesses...Why? Well, as I've written many times before, the mass media is not interested in the truth. The mass media are only interested in filling the spaces between advertisements. That's all. 


Besides that, as a more than 30 year veteran of the mass media, I will tell you that the business of most in the mass media is: kissing businessmen's a*ses in the hopes of getting paid advertising for their media...


While the Internet and Social Media are all the rage today (Hint: when things are "popular", they are already out of fashion) there's still a few "traditional" business models that blow the rest away.


You won't read too much about this company in the mass media... Yet... But you will someday soon (the mass media are always a day late and a dollar short.) But this company blows the socks off of Groupon, Twitter and these other flash in the pan "Social Media" darlings of today. 


I'm talking about a publishing company. That's right, a publishing company. You know, printing press and all. Ink and paper....


Gutenberg would be blown away that a company, so many centuries later after his invention, could use his idea and still make a massively successful and profitable business in the age of the "Internet", in the age of "digital media."


Remember that it wasn't that long ago when people were saying that the Internet was going to destroy books and magazines? Ha! Laughable. Remember that it wasn't that long ago when they said that children today needed to know about the digital age in order to survive? Ha! Laughable. 


As it was 2,000 years ago and as it will be 2,000 years from now, the wealthy, the intelligentsia, the church and the movers, shakers and leaders of society will be people who read books. It has always been that way, it always will be. 


To think otherwise is just plain stupid.   


You know, I'm talking about one of the most profitable companies in Japan today...a publishing company that puts out old fashioned things like books and magazines... And, no, you can't get their products on Kindle.


I'm talking about Deagostini. Specifically Deagostini Japan...(If that link doesn't work, see here: http://deagostini.jp/)


Look out Internet businesses! Your business models are far too often a scam (or full of scams or SPAMS!) I think so because if your online business doesn't translate into something tangible or real-world, then you are headed for a fall.

Move over Groupon. I've railed on you over and over. But your business model is a joke. Who could possibly think that there would be a potential for a business that survives on SPAM? And you want a 60% sales commission!? Any good business model has to be good for all parties concerned... I don't see where you are getting any repeat customers in Japan... Maybe that's why your advertising here has disappeared. Gee! Does Groupon save me time from having to clip coupons? I never really had a problem with that before. Did you?


Twitter? You kidding me? I get more messages from Twitter that are SPAM than anything that I would ever want to read... And who needs to read idiotic nonsense on Twitter like, "How to get more followers on Twitter for only $5?"


Jeez! Who wants a bunch of "followers" who are people who know absolutely nothing about you nor do they care about you excepting that you are another digit in their masturbatory dreams of having a large "Twitter following"?

What a joke!


But old fashioned publisher Deagostini is no joke.


Deagostini sells a product that you can hold in your hand. Deagostini sells a product that kids can look forward to like Christmas or a birthday. Deagostini sells an "event" and a "limited edition" item... Once they are sold out, they are gone forever...


People in a consumer society have a history of going crazy over stuff like that.

X-RAY SPECS - ART-I-FICIAL

I know I'm artificial

But don't put the blame on me

I was reared with appliances 

In a consumer society 

When I put on my make-up 

The pretty little mask not me

That's the way a girl should be 

In a consumer society 

Deagostini Japan was founded in 1997. Because of the Internet, 1997, was called the beginning of the end for the traditional publishers and old school mass media. 


Deagostini's late entry into Japan was considered by many a joke. All the traditional big Japanese publishers laughed at this upstart foreign company and their ridiculous ideas for penetrating the already overly-saturated Japanese market... A market that was the most profitable with the highest literacy rate in the entire world...


They all said that Deagostini's products were cheap and poor quality. Then, Deagostini were the laughing stock of the Japanese publishing world. It was thought that there was no way a foreign company could come here and survive... 


That was then.


They aren't laughing anymore...Last year, of the top 15 publishing products sold in Japan, 13 of them were Deagostini products. I got the sales figures for Deagostini Japan yesterday. These figures are not public yet, but I have quite dependable inside information. 


Deagostini sales in Japan for 2010 (still not public information) were....are you sitting down? ¥28,400,000,000! That's ¥284 BILLION YEN! (about $370 Million USD!) Not only is that just incredible, but of those sales about 30% is pure profit of ¥842,000,000 (about $110 million dollars!)

Deagostini Japan's newest model... Think kids go crazy

for this stuff? Yes. They do! I know even adults who buy

these items... Heck! I've even bought them before!

How does Deagostini do it? It's so simple that when I first heard this idea, I slapped my head and thought, "Of course! Everyone knows this idea!"


How do they do it? Deagostini releases their products in a limited edition series. Like the Gundam advertisement above, they will release a quality model of a toy product (anime, war plane, car, ship, etc.) in a series of editions to be released once a month or so. There could be anywhere from 12 to 50 or 60 items in a series.


The first editions are really cheap. They get more expensive as the series progresses.


I bought a Zero Fighter for my son last Christmas at the book store because I couldn't believe how cheap it was and the quality was awesome for the price.

This model was high quality metal cast. It had moving parts.

It came with a huge book, and other great things that boys love... 

I think it was about $4.00.... 

Then, regularly, Deagostini releases the rest of the series in succession. As the issue go along, after a certain point, the items grow slightly in price.


If you are a real collector, you will buy each item until the series is over. Trust that there are tons of collectors with the disposable income to buy this stuff in Japan... Not just Japan! All over the western world. 


In, say, a twenty series set, by the sixth issue, Deagostini has broken even on the cost of production and logistics of the entire series and each item sale after the sixth issue is pure profit.


Get that? In the series, after the sixth issue or so, every item they sell is 100% pure profit.


It's an incredible success story and an incredible business model.


So much so that Deagostini is a model for future businesses in Japan and the world over... How many other businesses can claim that 30+ some percent of their sales is pure profit?


Certainly not Facebook or Twitter, which have no sales; nor Groupon who keeps doing the switcheroo on accounting methods.


Kids want something to hold in their hand and play with. The child's imagination is a powerful thing. Social Media offers no real tangible items....


Deagostini not only offers a product to hold and play with, they sell a dream and something to look forward to every month.


With Deagostini products, kids get Christmas not once a year, but 12 times a year... Adults too.


What's having something to look forward to everyday worth to the average person? Well, judging from Deagostini's Japan sales, it's worth well over $370 million US dollars and growing. 


Nah. No big deal, right? Let's talk about Social Media.... Yawn!


UPDATE: My friend Brenda chimes in:


Mike,

Not only that, they re-issue same series years down the line - all profit! I did some marketing for them in UK years ago.