Blog Relocation

Moving over to a new host. Link: www.aaronpigeon.com

Small Biz in the US, Myth or Reality?

Small business success is usually taken for granted here in the US. We often refer to small business as the backbone of our economy, and at least in principle subscribe to the importance of small businesses in spurring job growth and innovation.

So it may come as a surprise that the US actually ranks in the gutter internationally according to some important small business metrics. According to the report An International Comparison of Small Business Employment, compiled from OECD data and published by the Center for Economic and Policy Research, the US ranks near the bottom of a set of 22 industrialized nations on all metrics examined.

The report found that whether in manufacturing, computer related services or research and development, the fraction of US residents employed in small businesses was lower than in countries such as Germany, Japan, and the UK, often by significant margins.

I thought these findings were very interesting in light of the rhetoric paid to the importance of small business in the US. As someone who believes strongly in the importance of small business as a proxy for entrepreneurial initiative, these findings worry me. Does our image of a nation of rugged entrepreneurs and innovators belong more to the realm of myth than actual reality?

This is hard to know. While the quality of our startups and small businesses is certainly more important than the quantity, it is also true that entrepreneurial success is assisted by the ecosystems that build up around large concentrations of ventures. The successes of venture communities in Silicon Valley, NYC, and Austin, TX certainly point to this.

A common view that I subscribe to, and one that is echoed in this report, is that the difficult task of starting a business is compounded greatly by a lack of access to affordable health care services in comparison to other countries. It is no trivial thing to quit a job with guaranteed health benefits to start a company with a significant risk of failure, and many commentators believe that affordable job-independent health care would greatly contribute to a long term increase in the number of successful small businesses.

Journalism (Remix)

I have written before on how the news business model is in dire need of an update. Here and here, I've argued that what we casually refer to as news is actually a conflation of the two processes that go into making the news product. The first is journalism, or the actual gathering of news, the second is the process of distributing that product to consumers.

This distinction is crucial. Much is being made of the death of news, but the loudest voices making this argument all come from the traditional news industry. No surprise then that all this hot air is merely code for the increasing irrelevance of newspapers. But this should hardly be a surprise to anyone. Indeed, the surprise is that a nearly century-old business model still has some life left at all!

Death Is Simple Pt. II: Book Stores vs. App Stores

A friend of mine has written a multi-part piece explaining the concept behind the the name of this blog. Here is Part 2:

Goodbye bookstores, hello online app stores? I hope not, I truly enjoy the sanctuary a real bookstore has to offer, especially Ann Arbor, Michigan’s own Borders, the second largest bookstore chain in the U.S. However, the advent of versatile e-readers (Apple’s  iPad, Amazon’s Kindle, Sony’s Reader, Barnes & Noble’s Nook, Borders’ Kobo Reader and more definitely on the way) has permanently transformed the basic paradigm of a bookstore to a virtual model based upon a reading device and its corresponding app store.

Bookstore chains can no longer rely on selling paperback books within the serene comforts of a brick and mortar store. Ultimately, the basic premise of a bookstore is no longer solvent; the focus has shifted to creating an e-reader ecosystem while maintaining relevance among existing customers, two points I will refer to later.

As I outlined in my previous post, an inflection point for our purpose occurs at the point when business as usual starts putting companies out of business. It is the point when past success stops paying dividends and begins to prevent growth in profitable directions. Everyone returns to zero once the paradigm shifts.

International Data Corporation (IDC) estimates about 2.5 million e-readers were sold in 2009, and that number is expected to double to 5.1 million this year. For now the Kindle rules 60 percent of the e-reader market share. Its place at the top is by no means guaranteed, but without a doubt e-book reading is gradually replacing the omnipresent paperback at your local bookstore.

Among my favorite bookstores, Borders is on the brink of succumbing to the e-book assault. Narrowly avoiding default on a $42.5b debt on April 1st of this year, it will live to fight another day. But the long term outlook for the company is grim, as the trends that have nearly brought it to its knees will only get stronger with time.

This author believes that Borders' best long term hope is an “acquisition by a larger bookstore chain like Barnes & Noble.” But, as I said last week, death is not simple in the business world. I disagree with the author’s long-term survival diagnosis. Borders should follow Barbes & Noble’s blueprint and attempt create its own inflection point, otherwise it will be facing something more akin to liquidation than acquisition.

But what has B&N done that has allowed it to become the top bookstore chain in the US? For one, it has been much quicker to jump onto the e-reader bandwagon than Borders has. In a smart strategic play, it recently unveiled compatibility between its Nook and the Android platform, plugging it in to an existing base of applications and users.

In addition, B&N is touting a feature called Read In Store, which allows Nook users to browse the retailer’s library of e-books free at any B&N location, with the entirety of each book accessible for an hour per day for free. This may prove to be popular, especially for fast readers out there, and may provide a partial solution to the question of how to lure customers back into physical bookstores.

Additionally, B&N will sell their updated Nook not only on its website and its bookstores, but also in Best Buy stores. Similarly, Amazon has announced that it will start selling Kindles in select Target stores. Selling the Nook at retailer store with retailer pricing may allow B&N and Amazon to partially avoid being outflanked by threats from the iPad and other e-readers.

Particularly, touting the “Read In Store” feature may allow B&N to remain on the offensive and at very least establish novel niche in the digitalized book business world and above all, revitalize the brick and mortar concept of selling books:

B&N's goals (and Borders' as well, if they are wise) can be summed up thus:

-Move quickly to maintain relevance among remaining bookstore customers.

-Integrate digital avenues of expansion into brick and mortar model.

It may be too late for Borders to successfully break into the e-reader/app store space, but waiting around for an acqusition is certainly not going to enrich shareholders in the long term. Either way, B&N is the model it should be trying to follow while rebuilding or positioning itself for acquisition.

That said, Borders and B&N still face a real long-term threat from dedicated e-reader companies like Apple and Amazon. This is the Catch-22: as e-reader devices add more performance enhancements and improve their online selections, fewer customers will enter a real bookstore and buy physical books. The real question may not be whether Borders can survive, but if bookstores in general will make it. 


Adesina "Ade" Aladetohun is a Communications Officer in the US Marine Corps

Guest Post: Death Is Simple Pt. 1

A friend of mine has written a multi-part piece explaining the concept behind the the name of this blog. Here is Part 1:

in·flec·tion point:

Noun: The point of change on curve: a point on a curve at which the arc changes from convex to concave or vice versa.

 Encarta Online

"An event that changes the way we think and act." 

-Andy Grove, Founder of Intel

An inflection point refers to the locus of major change within a system. When applied to a business context it refers to an invention or paradigm shift that disrupts entire companies and industries. It is a reminder that no matter how secure a position may be now, market disruptions are always a risk, if not an inevitability.

To minimize this risk, we must be able to conceive of change beyond our immediate views and perceptions. In doing so, we remove the blinders that may cause us to miss threats beyond the immediate event horizon.

Why Health Care Reform Won't Work

This post was difficult to write for a number of reasons. First of all, any topic touching on current political issues is immediately distorted and shoehorned somewhere onto the Republican/Democrat spectrum. The linguistic judo required to escape such juvenile binary categorizations are beyond my meager abilities as a writer.

Secondly, the problems that health care reform (HCR) is attempting to solve are very real. Medical costs contribute to almost half of all personal bankruptcies, our population is aging, and wages have not kept pace with the rise in costs. It is therefore clear that some sort of reform is necessary, probably just not the kind we're going to get. Here's why.

Basics of Climate Change Economics via Paul Krugman

I tend to keep Paul Krugman as a columnist at arm's length, but his recent long-form piece in the NY Times Magazine caught my attention for the quality and comprehensiveness of his analysis and the simplicity of his writing in summing up the climate change issue:

Let’s be clear. We’re not talking about a few more hot days in the summer and a bit less snow in the winter; we’re talking about massively disruptive events, like the transformation of the Southwestern United States into a permanent dust bowl over the next few decades.

He clearly explains the economics behind pollution, cap and trade, and carbon taxation in layman's terms and lays out some workable ideas for policy changes.

He also gets a shot in at the conservative troglodytes in office who oppose any climate action by railing against government regulations of business in principle:

This reaction — this extreme pessimism about the economy’s ability to live with cap and trade — is very much at odds with typical conservative rhetoric. After all, modern conservatives express a deep, almost mystical confidence in the effectiveness of market incentives — Ronald Reagan liked to talk about the “magic of the marketplace.” They believe that the capitalist system can deal with all kinds of limitations, that technology, say, can easily overcome any constraints on growth posed by limited reserves of oil or other natural resources. And yet now they submit that this same private sector is utterly incapable of coping with a limit on overall emissions...

Its good to see Krugman can still think like an economist, I've not been impressed with his column since he morphed into a reactionary Keynesian cheerleader during the stimulus debates.