Tuesday, July 8, 2008

Economics of Craft, Part 5 - Create Your Own Part-Time Job? If Only.

The indie craft world is so hipster that the dominance of older stay-at-home moms on Etsy blows my mind.

Creative entrepreneurship may be a quest for meaning. It might also reflect a desire for self-determination. Importantly, though, it also seems to mirror a struggle among women to find part-time work.

Some 60% of working moms would prefer part-time work, but just 24% of them actually work part-time, according to the Washington Post. Most moms choose either a full-time job or no job at all, when they'd really like to work somewhere in between. Why?

Basically, part-time jobs suck. Penelope Trunk rips the New York Times
for promoting "shared care." Shared care is when parents split both parenting and income-earning 50/50. Which is to say, both parents work part-time.

As Penelope Trunk points out, downshifting from full-time to part-time work is tough because your income potential drops dramatically once you do -- even if you are self-employed. Two part-time incomes are unlikely to add up to one full-time salary, in the real world.

Skipping around my Etsy favorites list, I am surprised by all the moms out there looking to earn income from the site. Then there are folks like my cousin's cousin Lisa, who was selling her art on Etsy as she waited for a transplant. (Which she has just recently had, and is rapidly recovering from. GO Lisa!!!) The prospect of earning a decent part-time income stream by selling on eBay, Etsy, etc is appealing.

Unfortunately, the average Etsy seller makes about $1000 per year. (How do you get this? $6.5 million in June 2008 sales divided by 442,000 sales equals an average item value of $14. In April, there were 73,478 sellers with at least one item for sale. 442,000 sales divided by 73,478 active sellers is 6 sales per person per month. At $14 per sale, that's 84 bucks a month or $1008 in a year.)

Of course, most people don't earn $1000 a year -- they earn a whole lot more or a whole lot less. For every successful person who makes $20,000 on the site, you might have 50 sellers who earn less than $500 per year.

This is not a criticism of Etsy, nor does it imply that there's any limit on the number of people who might become self-employed or earn decent part-time income on the site. And yet -

Successful part-time entrepreneurship is certainly the exception, not the rule, on Etsy today. And the success stories on Etsy are dominated by folks who are working 40 hours per week (or more!).

Half the work, half the income? Unfortunately, part-time work that truly competes with full-time gigs is still elusive... even in the land of crafty entrepreneurship.

Read more!

Wednesday, June 25, 2008

The Secret Spirituality of Craft and Career

The search for meaningful work seems to be a defining experience of young adulthood, and certainly fires up the ranks of indie entrepreneurs. Dissatisfaction with how this search is going is so prevalent that there's even a word for the malaise.

If there's anything I truly want - any reason I get my butt in gear to write this blog - it's the dream of getting closer to a fulfilling, world-bettering career.

But what if this longing for work that makes a difference is really a longing for something else?

Penelope Trunk, career blogger extraordinaire, sifts through the psychological and economic research on happiness and summarizes it as follows:

So you don’t have to make yourself crazy about finding the perfect job. All that stuff about how you need to find a job that you love is overstated. “Some people don’t seek fulfillment through their work and are still happy in life. All options are legitimate and possible,” says Amy Wrzesniewski, professor at the Stern School of Business at New York University.

What does matter, then, according to the scientists? Your level of optimism and your relationships, especially your romantic relationship.

If you even consider dethroning work as the #1 or #2 driver of life satisfaction, you start to ask: What made everyone think career was so important in the first place? And what exactly are we longing for when we dream of starting our own business or finding work that expresses who we are?

I've started to wonder how much our generation's embrace of career as salvation -- and craft as an additional path to fulfillment -- is a spiritual journey more than anything else. Of course, I'm certainly not the first one to have that idea. But I still find that there is a passion for the moment when we are finally able to live on our own terms, when our art or creativity becomes our livelihood. And maybe there's something delusory about putting that much hope on an income stream.

Building a rockin' small business could make your life better, but it's not likely to lead to the fundamental shift that so many of us are craving.

Pursuing your creative impulses or starting your own business certainly aren't pointless and futile -- in fact, the people least susceptible to burnout are serial entrepreneurs. But I am beginning to wonder, for myself if for no one else, if I haven't been expecting too much from work and acts of individual self-expression, and not focusing enough on the importance of relationships and a commitment to spiritual inquiry.

Read more!

Tuesday, June 24, 2008

Economics of Craft, Part 4 - Returns, returns, returns!

While launching this blog over the past few months, I've gotten all fired up about crafty small business.

At the same time, my Etsy purchases have slowed to a trickle.

It's an uncomfortable disconnect for someone passionate about increasing people's ability to become creative entrepreneurs.

Usually, uncomfortable disconnects offer the most valuable information of all - whether it's a disconnect between your conscious values and the choices you keep making in your life, or between status quo wisdom and your gut sense of what is best.

Q: Why don't I buy on Etsy anymore?
A: Because most of the stuff I buy on Etsy I don't like, and most of the time you can't return it.

I did a quick tally of all my Etsy purchases to date. Out of 36 things purchased for myself (that's a lot of things, isn't it!), I really like and use just 13 of them. A further 10 I use but am not in love with and wouldn't have bought if I'd been able to see them in person. The remaining 13 I've donated to my local thrift store.

Most of the Etsy successes are housewares and art. Most of the failures are clothes. As it happens, clothes, shoes and apparel are more likely to be returned than anything else purchased online. My beloved if embarrassing closet purging guide says you shouldn't buy clothes online, and I am beginning to think the authors are right. I've resolved to spend more money on amazing pillowcases like this one from brokesy and less on impulse clothing buys.

Being happy with only a third of my Etsy purchases is a very low success rate. Why is Etsy shopping so filled with duds?

First, with bricks-and-mortar shopping you can see things in person before committing. Not too much online sellers can do about that, of course (besides a big presence at your local craft fairs!). Another big reason for greater satisfaction with in-person (and Amazon.com) purchases?

Because if you don't like something, you just return it.

In earlier Economics of Craft posts, I dug into why you need to make truly special products if you hope to make a living selling handmade items online. I also promised to share how people hoping to be self-employed, or earn decent supplemental income, from their craft might be able to stand out in the crowd. One suggestion?

Returns, returns, returns!

Offer them gladly! The default among sellers on Etsy, eBay, and a surprising number of independent web storefronts is not to offer returns. While this seems to reduce a lot of hassle and risk, I think the sales benefit to offering returns would exceed the cost.


1. Offering returns creates a sense of security for buyers. Pressing that "Add to Cart" button is easier when you know the decision can be reversed. In a survey of online shoppers, a whopping 90% said that a convenient return policy is important in their decision to purchase from a new or unknown seller. 80% said they are not likely to shop again if they have difficulty returning an item. How many more buyers would Etsy attract if generous return policies became standard??

2. Offering returns demonstrates confidence in your product. How much faith can you have in the products of someone with a snippy "NO RETURNS!!!!!" message in their profile?

3. Even if people say they want the option to return stuff, most don't actually return things. Returning something by mail costs a few dollars and requires an inconvenient trip to the post office. Even if a buyer isn't 100% satisfied, many will simply not bother to make a return. One poll of frequent online shoppers showed that 51% had never returned a single thing. In fact, the longer somebody has shopped online, the less likely they are to return something. This is interesting, since most of the folks trawling for handmade items are likely to be people who buy lots of stuff online.

4. Prove you're a professional - and earn your markup. In the race to differentiate yourself from hobbyists who are willing to undercut you on price, you need to stand out on service. In the next Economics of Craft post, I'll take a look at another aspect of professional-quality service: rapid shipping and the creation of a 'gift experience.'

Moral of the story? A generous return policy is a low-risk way of demonstrating faith in your product, establishing yourself as a professional, and snaring extra sales from cautious shoppers. This is especially true if you are selling clothing.

Read more!

Friday, June 20, 2008

Economics of Craft, Part 3 - When Selling is Consuming

In Part One of this craftonomics series, I quoted the story of one Austin Craft Mafia member's run-in with sellers who are willing to sell items below cost.

One sentence has stuck in my brain:

At the price she was selling the necklace, not only was she not making a profit - she was coming in at a loss. That is not running a business, that is just having fun.

Etsy and eBay et al are home to (at least) two types of sellers:

1. The Entrepreneurs. These folks are business people who want to sell an item at or above the cost of materials and their labor. Optimal price = materials cost + fair labor cost (say, $10/hour or more).

2. The Hobbyists. This group includes craft lovers who want to sell an item to offset the cost of their hobby or to increase their satisfaction with their hobby. Optimal price = materials cost.

Many sellers seem to begin as hobbyists and move onto becoming entrepreneurs. The vast majority of sellers, though, appear to run their business as a de-facto nonprofit.

What is difficult for the entrepreneurs is that many if not most sellers of handmade items are willing to sell below cost. Why? Because, from a hobbyist perspective, there are several satisfactions to selling that are not financial:

* Finding a happy home for something you slaved over. Also known as the My Boyfriend Doesn't Wear the Scarves I Make Him phenomenon.

* Feeling validated in the quality of your crafty skills that someone will buy something you slaved over.

* Clearing out your overflowing craft closet. This is why Autumn Wiggins' idea
to promote materials "upcycling" on Etsy is so genius. Upcycling involves people listing raw craft materials, possibly as free items, for others to use. Like Craigslist's free stuff for fabric and so forth. Heck, I'd pay someone to put my yarn stash to good use! It just sits there making me feel extravagant. Which leads me to:

* The ability to create without waste. No one in your life needs an adorable crocheted dog, but you might die if you don't make one. The answer: sell it on Etsy!

What does this mean for entrepreneurial sellers? It's crucial to create well-made and truly awesome products that people can't get anywhere else, if you want to get paid for your time. This is discussed further in Part One, "Why You Can't Make Money as a Middleman on Etsy".

The most interesting implication of this transformation in hobbyists' choices is what it means for mainstream, bricks-and-mortar craft stores, from Jo-Ann to the friendly local fabric store. So what does it mean?

* More sales. The rise of Etsy is unambiguously good news for craft supply sellers. Hobbyists buy more supplies, the rising class of entrepreneurs buys more supplies, and craft is cool so the ranks of the hobbyists are increasing. Unambiguously good.

* Especially, more sales for online suppliers and wholesalers. As the selling hobbyists buy in greater quantity, and perhaps with more lead time, than before, they will be more tempted to buy online and/or comparison shop.

* More young buyers. This is crucial and I still don't think big box craft chains understand, at all, the new demographic. You can tell they try, but the cover of industry mag Craftrends' January/February issue kind of says it all:

Selling as a form of consuming, instead of profit-making, is the dominant form of "business" on sites like Etsy. Many sellers dream of making craft their full time business. But most appear content with using sales to support their enjoyment of their leisure time. The very low cost of listing online allows these folks to jump into the game - hence "the Etsy effect" on pricing.

What else can entrepreneurs do to stand out in a field of hobbyists? Offer superior service. I'll dig into this in the next Economics of Craft post.

Read more!

Tuesday, June 17, 2008

My new green jeans - a little too punk rock??

Just purchased my first pair of organic cotton jeans! They are made by del forte denim. Check them out!

I am vaguely afraid that the back is too glam rock for a capitalist lady like myself. It's like I think I am dating Richie Sambora or something. What do you think? (Picture after the "Read More!"..)

Also on the green clothing tip, I am totally in love with Beklina, an online shop for "sustainable style." Be warned: the style is Barney's-worthy, but so is the price point. Unfortunately I'm not that big of a capitalist yet.

Read more!

Wednesday, June 11, 2008

Economics of Craft, Part 2 - The Quiet Doldrums of Miniscule Sales?

Let's have a Word of the Day! Today's word: premise (n). A proposition upon which an argument is based or from which a conclusion is drawn.

A premise is usually a statement of "what everyone knows." If there is any flaw in an argument, it can usually be found in the assumptions about "what everyone knows," not in the lovely argument that unfolds from that starting point.

Case in point: Kevin Kelly's thoughtful 1,000 True Fans post - hat tip, Chris Guillebeau - begins with a startling premise:

The long tail is famously good news for two classes of people; a few lucky aggregators, such as Amazon and Netflix, and 6 billion consumers. Of those two, I think consumers earn the greater reward from the wealth hidden in infinite niches.

But the long tail is a decidedly mixed blessing for creators. Individual artists, producers, inventors and makers are overlooked in the equation. The long tail does not raise the sales of creators much, but it does add massive competition and endless downward pressure on prices. Unless artists become a large aggregator of other artist's works, the long tail offers no path out of the quiet doldrums of minuscule sales.

I'm gonna lay it all out on the line and say that this makes no sense to me. The vast online marketplace we have today creates both more sales opportunity and higher profit margins for creative entrepreneurs, if you are thoughtful about what you sell.

As I argued in the first part of this Economics of Craft series, market competition on Etsy - or any other market aggregator - will crush pricing power for people selling "commodity" goods. But profit margins and income can actually be higher for craftistas who sell online than would've been the case pre-Etsy or pre-Internet. Why?

1. The "Who'd Want That Piece of Crap?" phenomenon. One woman's trash is another woman's treasure. I can't walk into a Betsey Johnson store without seeing anything I'd wear in a million years. Meanwhile, I think Candystore in San Francisco is a palace of transcendent clothing. My own personal hot-or-not: HAWT, the black label san francisco two-toned silk dress at right, and NAWT, the pink concoction from Betsey Johnson at left.

The Interweb allows sellers to better connect with people who think their stuff is awesome. People who think your stuff is awesome will pay more for it. Therefore, the more you can access people who love your work, the more likely you are to receive a higher price for it. I would never in a million years pay $400 for that pink eyelet-ridden ruffled thing, but many people would -- and Betsey, lucky and talented lady that she is, has found enough people who love her clothing to open stores across the country! As you work your way up to becoming the next Betsey, the Internet can connect you to people who think your work is invaluable.

Note: We hear a lot about "buying local," but "selling local" is not the best path for crafty small businesses. Two of my favorite Etsy clothing designers are based in Montreal and Guam. This doesn't seem environmentally tragic -how much pollution is generated shipping a T-shirt? - but of course correct me if I'm wrong.

2. Capturing the entire purchase price. In a wholesale environment, the producer sells a garment to a retailer for roughly half of the final price. On sites like Etsy or an independent website, producers can and do often sell at prices on par with standard retail prices.

Selling direct to consumers without a retail middleman is a classic profit enhancer for people who make stuff. It's not so much that retailers are evil as that store owners need to pay rent, utilities, staff, etc.

Selling online means you avoid all those costs. Even if you invest in setting up your own site, you get extra buck-olas every time somebody pays all of the retail price straight to you. That means higher profit margin, sista!!

Note: You can still make good money selling at the fatter part of the tail - in the mass market. Ashley G, who actually sold me my first Etsy purchase!, recently talked on the Storque about a project she did for Urban Outfitters. It's not a choice between niche and mass - if you're great at what you do and build a strong niche business, the mass opportunities appear. The economics of mass sales - low profit margin, high number of sales - will then apply.

3. Is it worse to sell a little of something than nothing at all? The whole point of the Long Tail is that little guys can make a few sales, instead of being totally shut out by mass market items. "The quiet doldrums of miniscule sales?" Isn't that better than the narcoleptic torpor of no sales? You can always build miniscule sales into a sustainable income with a surprisingly low number of people who love your work - which is, in fact, the entire point of the 1,000 True Fans post.

Miniscule sales can become modest sales which can pay your rent. Long live the long tail!

Read more!

Tuesday, June 10, 2008

Finding Freedom through Work

While there’s a case to be made that [DIY] is an art movement, or an
ideological movement, or a shopping movement, it is also — and probably
fundamentally — a work movement.
-Rob Walker, "Handmade
New York Times

In revisiting this New York Times article for yesterday's post on craftonomics, I started thinking about the term "indiepreneur." The moniker suggests a desire to live outside the mainstream, produce more sustainably, etc, etc.

For many crafty entrepreneurs, these goals are no doubt important. Yet I am wondering if other motivations are not more powerful in driving the explosive growth of Etsy, craft fairs, and so forth.

For one thing, it's not exactly a dirty-haired youth movement. The article quoted above points out that the average Etsy seller is 34. There's a lot of Obama craft on Etsy, but there seems to be a sizable apolitical demographic as well.

Could it be that the key motivating factor is a desire to support oneself on one's own schedule and terms, without having to choose from the existing universe of employee opportunities? To have the flexibility to build your work around your life, not the other way around? To trade-off an hour of work for an hour of earnings at will? To escape the choice between a 40 hour per week career (or 60 hours, or 80) and a job that pays $8 an hour? To be yourself instead of being whatever variant of yourself you think plays well in Cubicle Land?

If control over one's own time and money (also known as "work-life balance") is a key goal of the movement, that might explain why so many women are at the forefront. Ladies are leading the charge both in the crafty small business world - over 90% of Etsy sellers are female! - and in other arenas, within and outside of corporate structures.

This blog devotes itself to indiepreneurs. Maybe now's a good time to have a look at other folks who are shaking up the possibilities of viable work. Let's call them the "intrapreneurs."

The Intrapraneurs: Results-Only Work Environment.

Six years ago, two women working at Best Buy's corporate headquarters started a stealth movement to work whenever they felt like it and be judged only on their work product, not the amount of time they spent in their cube. They called this a results-only work environment, or ROWE. The idea caught fire and other groups and departments at Best Buy began to implement the ROWE system, under the radar of senior management. By the time the CEO heard about it, most of the corporate HQ was quietly following this protocol. The system turned out to dramatically improve productivity and employee turnover, and has now been embraced by the higher-ups at Best Buy.

Now these ladies -- Cali Ressler and Jody Thompson -- have a book out called Why Work Sucks and How to Fix It. Check out a nice interview with the authors at Tim Ferriss' blog, AKA the guy who gave us a book on The 4 Hour Workweek.

Crafty small business offers a way to create your own schedule, live authentically, and connect more personally with the people who benefit from your work. But it's interesting to think that there's no reason why corporate life couldn't offer the same benefits... if thoughtful people started an underground movement within their own company. Let's end where we began, with a quote, dedicated to my fellow cubicle dwellers:

The foolish man seeks happiness in the distance; the wise grows it under
his feet.
- James Oppenheim.

Read more!

Monday, June 9, 2008

Economics of Craft, or Why You Can't Make Money as a Middleman on Etsy

How is the existence of Etsy shaping people's ability to make a living off their craft?

The Storque, Etsy's blog, has begun a new feature called Quit Your Day Job. The series profiles Etsy sellers who've managed to cut their ties to 9-to-5 work and become self-employed. Since I often read the posts at my day job, I find it very inspiring!

Yet is it possible that Etsy has actually compromised the ability of crafters to earn a living?

Rob Walker, the New York Times Magazine columnist who gave us the handmade revolution's biggest and best mainstream article to date, has a 3 part series on his blog interviewing the founders of Austin Craft Mafia.

One founder, Jennifer Perkins of Naughty Secretaries Club, has been selling her jewelry online since the pre-Etsy era. She offers her perspective on how Etsy has changed the rules of the game:

Q: What's your take on Etsy - is there an "Etsy effect" in the
sense of an effect on pricing or other issues?

I love Etsy and shop there like a wild woman.... However, as someone who
has had a website selling my handmade goods as my sole source of income for
several years now, it has most definitely had an effect....

I have spent thousands of dollars through the years with Naughty Secretary
Club on advertising, web hosting, credit card processing fees and more. With
Etsy those fees are not an issue so people are able to price their items much
differently. Sometimes I think people are selling things just because they
enjoyed making the item and not to pay a mortgage, which makes it hard.

I sold a vintage/deadstock necklace to a girl over the Christmas holidays
through my website for $12 including postage. A few weeks later she sent me the
link to an Etsy vendor that was selling the same necklace for $7 (not including
postage) and a nasty note about how my prices were too high. There is a store on
the East Coast that specializes in deadstock vintage jewelry components that I
am assuming the Etsy vendor who was selling the same necklace bought her parts
from same as I did. If so, at the price she was selling the necklace, not only
was she not making a profit - she was coming in at a loss. That is not running a
business, that is just having fun. Fun is fine. I like fun as much as the next
guy. But how do I compete with that? Not all Etsy vendors price their things
this way, but there are a few that do, as I now know from personal experience.
And obviously, since I got hate mail about it, people notice.

This story offers great insight into the future of craft economics under Etsy. What can we look forward to?

You will not make money being Nordstrom, you will make money being an artist. To put this another way, there's not a lot of profit to be made if you are selling something that is not unique. While the necklace in Jennifer's story is handmade, in the sense that it required assembly, an identical necklace sold by many sellers is a commodity. It's more like a gallon of gas than an artisanal creation.

In a commodity market, the buyer will always seek out the lowest price. Etsy sellers dealing in these items will always face a "race to the bottom" in terms of profit margin. This is especially the case because there's such a low cost of doing business on Etsy. A middleman operating on Etsy or Ebay has no reason to markup items as much as Nordstrom, since there's no rent or staff (or often taxes!) to pay. And alas, if the site helps hobbyists buy in bulk and sell what they don't need, commodity products might even be sold below cost.

Do not despair! The upside is that you can charge a premium for unique, high-quality goods. For example, I love Etsy seller moop's Fraulein tote:

The tote currently sells for $96, which is on par with (or exceeds!) the cost
of a comparable bag bought from a department store. I have one in sage green
that is my default weekend bag - the durable construction stands up to anything
and everything I've thrown into it. The style is super cute and definitely not
something I've seen anywhere else. Is it the cheapest bag on Etsy? No. But it's
really cool, so I forked out a bunch of cash. This is the type of product that
will generate profit in the craft economy under Etsy.

Moral of the story? If anyone else is selling something that is
identical to what you sell, you have a problem.
Unless, of course,
you're comfortable with slim profit margins (i.e. a handful of cents per

Read more!

Monday, May 26, 2008

declare your craft!

All the posts on this blog so far have focused on the business and environmental impact of craft, but what about the fun part?

Yup, that's Britney Spears. In cross stitch. Or as the rebels like to say, xstitch. I invite you to...

In addition to "normal" crafts, like stitching up tasteful pullovers from Vogue Knitting, I am fascinated by what happens when you cross-stitch photos of people and animals. Sometime in college I discovered a computer program that turns photos into cross-stitch patterns. The results are uber-creepy and weirdly fascinating:

I mean, some grandmothers love their progeny so much, they still adore them when they see these creepy pixellated versions of their beloved. It's heartwarming.

In 2001, when I first encountered these photo transformation programs, I had a quiet fascination with Britney Spears. Remember the "Oops I Did It Again" era? Before Kevin and the two babies and the rehab and the shears? Yeah, she was hot and had her act together:

Britney and I are both 1981 babies, so it was interesting to watch the media treatment of her as we both came into our own as women. At the same time she was bursting onto the scene, when we were both 17, I had my first real boyfriend and identified with someone who held a lot of power because of a sexuality that she did not quite understand.

The swiftness of the story the media told about Britney -- from Lolita to barely legal to sloppy seconds -- unnerved me. In two years they took her from virginal treat to used-up tart. And now, several years later, Britney is a highly troubled and perpetually bloated-looking mother of two. I still feel like an attractive young woman but who knows, maybe I'm past my prime too! But I digress..

It became imperative that I cross stitch Britney. After purchasing 34 colors of DMC embroidery floss and investing the better part of a winter break, the following "art work" emerged. Cross stitch Britney is photographed in my bedroom on an unusual cloudy day in San Francisco.

Inspired by awesome blogs like Radical Cross Stitch, I've been thinking about picking up an embroidery needle again. There's a lot of incredible political cross stitch out there -- here's one great example and see this xstitch photo archive for more:

Truth be told, when I look into my heart to see what I want to stitch, it always seems to come back to photos of celebrity girls who somehow embody a quality or lifestyle I'm consciously ashamed to admire. The Britney love has died. Who would I cross stitch today? Hands down, it would have to be Lauren Conrad:

Read more!

Monday, May 19, 2008

Shareholders: Community building through finance

We're used to putting our money where our mouth is when it comes to consumption, but what about finance? The Wall Street Journal ran an article exactly a month ago on Susan Gibbs and Martha's Vineyard Fiber Farm:
(Her blog is the source of this goat picture, and believe me when I say there are many more ridiculously cute animal photos where that came from!)

This Etsy seller keeps her goat farm going by selling shares in each season's "yarn harvest." How does it work? Each supporter pays $125 for a share upfront, which goes toward buying hay and feed for the animals (as well as keeping the human caretakers afloat, presumably!). At shearing time, the farmer divvies up the yarn to each shareholder. This system is known as Community Supported Agriculture, or CSA. This type of organization is recognized by the US government and promoted by the USDA.

What fascinated me about this story is the use of Etsy as a financing tool. Most people use Etsy as a marketplace - a place to sell something that already exists. All responsibility for buying supplies falls to the seller (though some sellers manage this risk by not making multiples of an item until an order is placed). CSAs have historically been used to help farmers manage risk by lining up buyers before the season starts. Also, shareholders are only entitled to a certain percentage of the harvest - so if a crop suffers, due to poor weather or what have you, the farmer isn't the only one to suffer. (Likewise, if the crop is stellar, shareholders get a share of the benefits.)

Small-scale crafty makers do not generally have access to this type of risk sharing. What I keep being struck by is how capital-intensive a lot of the goods on Etsy are. "Capital intensive" just means you need to pay a lot of money upfront to make these goods. Sewing machines, woodworking tools... handmade stuff typically requires some pretty expensive tools. (Vintage, of course, requires little upfront spending or skill - that's why vintage sellers multiply like ragweed on Etsy, with no disrespect intended to the vintage sellers with great taste who I love on the site.)

CSAs are a great risk-reducing institution for farmers. What type of institution could be imagined for small-scale makers? Maybe the best way to reduce risks for crafty small business people is to think about reducing personal risks. For example, focusing on finding an affordable way to provide healthcare for the self-employed -- something a nation that prides itself on being so entrepreneurial should have figured out ages ago.

Read more!

Friday, May 16, 2008

Beyond Dad and MasterCard

I am back from a vacation in beautiful Sweden and ready to get back to work!

Awhile ago, I promised to share resources for crafty entrepreneurs looking for loans to grow their business. Outside of credit cards and family and friends, what can an etsy seller or other small business person do to find financing?

1. Banks. Okay, duh. I mention the obvious because, if you qualify for a small business loan from a bank, you are likely to get a lower interest rate than you will from other sources. You can also have the flexibility of a line of credit, which functions like a personal credit card -- unlimited borrowing up to a given credit limit -- but with a much lower interest rate. It's definitely an option worth exploring. Many community organizations offer free classes to help you put together a business plan and otherwise navigate the process of filling out a loan application.

2. Friends and family, formalized. A new crop of web-based businesses match borrowers and lenders while sidestepping traditional banks. Sites like Virgin Money allow you to tap resources from the people you know. You can set an interest rate from 0% (you borrow $1000 from Aunt Mabel, and pay her back $1000) to whatever interest rate the borrower and seller negotiate. What value does the website offer? Virgin Money and its competitors handle legal and tax documentation for the loan and electronically transfer the funds.

The greatest value these sites provide is that they do the ugly work of making sure loans get repaid. Today, many grandparents earn 3% interest on their CDs while their responsible grandkids pay 9% on a car loan. It doesn't make a lot of sense. Wouldn't it be better if grandparents made the loan so a better interest rate for both parties (say, 6%) could be negotiated? The reason this doesn't happen in real life is that it's difficult for the average person to structure a legal contract, and not always socially appropriate to do so -- which makes the loan a big risk for lenders. Sites like this are basically stepping up to be the bad guy, if necessary. This is an exciting development for eliminating missed opportunities among family and friends.

3. Loans from strangers. In addition to sites that connect you with friends and family, many other sites will connect you with strangers as a source of loans. These are known as "person to person" lending sites. Prominent lending sites include Prosper and Zopa. These sites allow you to post a profile describing how you will use the money and some information on your credit history. These profiles are anonymous and visible to anyone. Strangers (as well as family and friends, if you like) bid on the loans in a eBay type of auction. People can contribute anywhere from $50 to the full amount you request.

It's a brand-new market that's gained a fair amount of steam. Prosper alone has funded over 20,000 loans to date with a total value of $137.3 million dollars.

And on the crafty front, my girl Willo, an illustrator and web designer who makes the cutest onesies I've ever seen, shared a link to a crafters group on Prosper. It seems that this group hasn't seen any loans among the members yet. It's an interesting glimpse though at a way craft lovers can lend to crafty business owners.

From standard to Web 2.0 sources of loans, I think these are all valid options to explore for anyone seeking a small business loan. If you try one, let me know how it works!

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Monday, April 28, 2008

Building an ethical supply chain

Because we buy products in stores, we tend to hold retailers responsible for what they sell. And of course, retailers are responsible - but sometimes we assume they have more control over product manufacturing and their environmental footprint than they truly do. The consequence? Without an understanding of how the current system leads to environmental hazard and human suffering, it is impossible to re-design a future with better outcomes.

Let's focus on everyone's favorite villain, Wal-Mart. The average Wal-Mart store carries products from over 60,000 suppliers worldwide. The Center for American Progress mapped out where these goods come from:

This collection of products and suppliers (along with all the cargo ships, warehouses, railroad lines, and everything else it takes to get stuff from factory to store) is known as a supply chain.

This unwieldy quantity of stuff creates huge problems for companies that want to ensure they are selling ethically-produced goods. (Whether Wal-Mart belongs in this group of concerned companies I leave to the reader to decide.) Regardless of your views on this question, Wal-Mart's efforts to build an ethical supply chain are fascinating to track because:

1. Wal-Mart is far and away the biggest US retail chain by sales. This gives the company more power with suppliers than any other outlet.

2. Wal-Mart has taken so much hot water for being unethical that they have put forth more effort (and press releases) on ethical sourcing than any other company.

3. For all the fair criticism of how Wal-Mart stores create waste, the majority of environmental impact comes "upstream" - before a product gets dropped off at the store.

Suppliers are the David to Wal-Mart's Goliath. What's shocking, then, is the extent to which suppliers have defied Wal-Mart's dictates.

First, there was the ID tag fiasco. In 2003, Wal-Mart mandated that all suppliers stick an ID tag on shipping crates by 2005. Now it's 2008 and the great majority of suppliers still don't do it.

Why did suppliers rebel? Basically, the benefit of ID tags (superior inventory management) accrued to Wal-Mart, while the cost (buying equipment and setting up processes to tag everything) accrued to the supplier.

Now, the same story is playing out again with Wal-Mart's latest effort to reduce the quantity of packaging in a product. (Hat tip: Watching Wal-Mart at Green Options.)

Suppliers are perfecting the art of the hold-out. On the one hand, go David! But on the other... what are the implications for companies passionate about building an ethical supply chain?

As these issues continue to gain attention, look for more manufacturers in China, Vietnam, etc. to specialize in eco-friendly production. I'm sure some must do so already. There's simply too much money in green products for it not to be in many manufacturers' business interest to be known as a green supplier.

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Friday, April 25, 2008

Lending for the Long Tail

The future belongs to businesses serving tiny consumer niches, it is said. Take, for example, the toilet decal market -- the brainchild of Etsy seller vital. Totally brilliant idea? Yes. On tap to become a market with sales like Coca-Cola? No.. but of course, that is not a problem.

Many of the businesses creating and supplying a niche market are tiny organizations themselves.

Yet our institutions that support small business - banks, the government's Small Business Administration, local community organizations, and so on -- are not well-configured to support entrepreneurs with low startup capital requirements, especially young people.

What's the next step in the Niche Revolution? Improving very small businesses' access to very small amounts of credit.

Small businesses built on their Internet presence are often cheap to start. Many entrepreneurs still need an infusion of capital, however, if for no other reason than they need to pay rent. Early part-time employees or lawyers, accountants, and other professionals paid by the hour may also need to be hired.

As a result, loans -- in the form of credit cards, money from family and friends, home equity lines of credit, etc -- very often figure into a small business person's strategy.

I think it is self-evident that credit cards and family loans can be a less than ideal source of funds for a business. High interest rates? Interpersonal complications? Yup, it's a messy source of capital. (And don't even get me started on the virtual impossibility of young people ever buying real estate in places like San Francisco.)

The idea of lending to small business people on the Long Tail has not been fully explored.

This is odd, because we have a well-developed existing theory and organizational structure for funding entrepreneurs with modest capital needs and minimal assets or credit history.

Microcredit -- small loans to entrepreneurs, for the most part in developing economies -- is becoming widespread around the world. To some extent, microcredit also exists in the United States. One organization I interned with in college is Washington CASH, which lends to low-income women and people with disabilities. For the most part, microloans are offered by nonprofit organizations, though some for-profit companies exist. Indeed, Compartamos in Mexico recently issued the first IPO in the microcredit industry.

Here in the US, though, we still do not have a good financial system for "pre-bank" niche businesses. By pre-bank, I mean small companies that do not yet have the proven cash flow or assets required by a bank to get a standard small business line of credit or loan. (I also refer to companies that do not require or aspire to large scale -- because if they did, they would most likely look to venture capital or other sources of bigger loans.)

While niche entrepreneurs often lack access to bank lending, nonprofit organizations seldom fill the void. Many Americans starting these microbusinesses are young and well-educated, but with low current income and net worth. Some of them are even male -- a big no-no in the world of traditional microcredit. Nonprofits often do not consider these types of entrepreneurs as their target demographic.

What to do? Perhaps not surprisingly, new Internet-based businesses are springing up to fill the void. In my next post, I'd like to share some resources for entrepreneurs looking to take their capital raising from the "Dad and MasterCard" route to the next level.

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Wednesday, April 23, 2008

Will petitioning for green products work?

In a comment on the truly green crafting article mentioned yesterday, I suggested that petitioning craft stores may not be the way to go:

A petition approach targeted to a store or type of owner could be less effective than sales-oriented approaches targeted to specific products we want to see more of.

What might a sales-oriented approach mean in practice?

1. Recognize the value we bring. Craft chains are suffering from falling sales and traffic. (Stay tuned for some numbers and analysis around the industry in coming days.) At the same time, young people love crafts. Making things yourself is a defining form of personal -- and even spiritual -- expression for our generation.

So what's going on? This is an existential problem for major craft stores. Passionate eco-crafters have insight that can help a savvy craft chain redefine its brand and attract young customers. This is a gift, not a political attack.

2. Big-picture value: A spiffed-up brand and growing market share. In an age when even Wal-Mart is trying to go green, this argument is not a hard sell. Young urban craftistas and 'mainstream' crafters alike are attracted to environmentally conscious products. (If executed correctly, and not greenwashed). Just imagine: If one of the big craft chains started stocking and promoting a lot more green products than its competitors, wouldn't you drive a little further to buy from them?

3. Next layer of value: Product sales and profitability. Across many consumer products, green is the little engine that could. Such products make up a small but rapidly growing share of current sales, and a diverse group of consumers expresses interest in eco-friendly products.

For example, take Clorox's new line of green cleaning products. In Clorox's initial research, they found that less than 2% of sales of all purpose cleaners in 2007 went to natural products. Yet sales of this niche grew 23% from 2006 to 2007. And Clorox found that nearly 50% of their customers would be interested in a green option, if such cleaners were readily available at local stores and of a similar effectiveness as traditional cleaners. Read more in the San Francisco Chronicle.

4. Champion codified standards or brands. Take out the guesswork. When Clorox wanted to establish green products, they relied on the Sierra Club's guidance and the EPA's Design for the Environment certification process, as is noted in the Chronicle article mentioned above. It's tricky for firms to get involved in defining what's green or not because they often don't have knowledgeable staff on hand to deal with these questions, and also because it opens them to charges of greenwashing. Advocates should have on hand a definition of what makes something green, and ideally, a certification process. Certification has been very successful at jumpstarting green commercial real estate construction, for example.

Some examples of this in the craft community are the Organic Trade Association's organic cotton standards and GreenBlue's Sustainable Textile Standard for all fabrics. Hopefully there are more out there!

5. Name-drop: Promote affordable and awesome products. Stores can only sell what their suppliers have on hand. In the longer term, of course, suppliers will make more green products if demand is proven out (as I think it will be). But in the short term, stores and consumers alike are constrained by what is available today. Know of a great glue, fabric line, etc? Talk it up. And when it sells out at a chain store, they will order more.

6. Build consumer coalitions. Three key goals promoted on Crafting a Green World include: transparency in manufacturing, invest in the development of innovative tools, and eco-friendly non-toxic products. The latter goal especially is just as appealing to teachers, Girl Scout leaders and grandmothers as it is to green lovers. What if school districts or a teachers' union committed to only buy green craft supplies by 2010? These big buyer blocks are natural allies. How can we get creative about working together to get the non-toxic supplies we all want?

There are probably more great ideas than those listed here. Imagining a win-win situation for craft retailers and the environment alike is the place to begin.

Read more!

Tuesday, April 22, 2008

Private equity: Scheming, or blind?

There's a great two-part series of on truly green crafting at the Storque on Etsy, by Autumn Wiggins and based on her knockout presentation at Craft Con. She begins:

There is general consensus within the DIY community that what we do has a uniquely positive effect on the world. Our universal philosophy suggests that embracing methods to handmake your own belongings is fulfilling and thought provoking. Yet, quiet debate continues as to the long-term advantages of buying handmade.

(read the full articles here, and here).

She continues to critique the practices in place at your local Michaels or JoAnn's (or a store that apparently exists in the Midwest that I'd never heard of, Hobby Lobby!)

Our rapidly growing sub-culture is spending large chunks of cash at retail stores that barely cater to our interests, contribute little to our community projects, and carelessly market unsafe products.... For most of us, craft stores offer little to no innovation of their merchandise, and aren't held accountable for pollution.

There is often a perception that corporations and private equity firms know about eco-conscious products, but choose to withhold them because this is better for the bottom line. To be honest, I think this is more a result of ignorance, inertia and limited green product availability than any villainous agenda.

Let's take the Michaels deal as a case in point. Here's how a higher-up at Bain Capital, one of the private equity firms that bought Michaels, perceived the company:

"Our deep experience in the retail sector reinforces our conviction that Michaels has the best store locations, a broad assortment of products for crafters and a sustainable competitive advantage.

Business speak aside, look at what he loves about Michaels -- a broad assortment of products and a sustainable competitive advantage. What young people value is always important to retailers because our preferences will shape what gains market share going forward. Being the first national craft retailer to commit to expanding their line of truly green products could allow Michaels (or any store) to build their brand and sales to young people. That's just good business. So why don't they do it? Honestly, the powers that be probably don't have a passion for crafting and so don't understand the communities they sell to. Is there someone at Bain or Blackstone tracking Etsy, Craft magazine and all things Maker, etc? If they were, they'd probably get their keisters in gear targeting this demographic ASAP. The fact that they're not just suggests they're clueless, not evil.

But there are some logistical issues: Supply chains for major national stores depend on suppliers being able to deliver at a certain quantity, speed, consistency, and of course, price. I would wager that most of the awesome products at sites like Crafting a Green World are simply not available (yet) in ways that any major chain can reasonably purchase. With lack of mass production comes high prices. Is it possible to create a green product that's the same price or 20% more expensive, not 2 or 3 times more expensive?

All of this isn't a travesty -- at least in the long term. It's a business opportunity. And I guess that's the central point of this blog.

Read more!