Sean’s blog

On news of the SIRIUS and XM merger there are rumors of some new radios, like the Starmate 5 and Stratus 5.  It will be exciting to watch.

I am a very frequent consumer of remote overseas labor.  I usually buy at least a project a week, sometimes I use providers that I know from previous engagements and sometimes I use sites like rentacoder and getafreelancer to find new people.

Usually I work with people in either: pakistan, egypt and argentina.  Last week I put a simple research project up for bid and awarded the project to two people, both in Nigeria.  They were incredibly cheap, both claim graduate degrees and I am paying an average of $4.00 / hr for their labor.  I haven’t seen the results yet because they are *both* late due to health problems.

One has a nosebleed that has lasted for several days, the other contracted malaria.  It could be that they are BS’ing me (I don’t really care, I don’t pay until the work is done), but it could be that public health in africa is causing a big problem for their economy due to lost productivity.

One of my businesses might be moving as a result of our landlord’s financial difficulties and their need to sell the building.  One of our favorite potential new sites has a geothermal heat pump.  The building is promising us that to heat and cool our 6000 sqft space it will cost about $125 / month.  We currently pay between $500 - 1000 / month to heat and cool our 5700 sqft space.  That’s amazing.  It seems almost magic.

Apparently it cost him $400K to put the system in. There are about 4000 sqft in the building - lets assume average savings of $600 - $125 = 475 / month for 6000 sqft, or about $1 / sqft / year savings - $40,000 / year for the full building.  Let’s assume that such a system lasts 30 years and energy costs rise at the rate of inflation, the NPV of the system is then 795k - quite a good investment, assuming that he can charge $1 / sqft / year extra.

We are considering paying $3 / sqft / year more than we are paying now - not just because of the decreased utilities, the building is also somewhat nicer, but the developer clearly is able to pass the cost along.  We also feel good about (potentially) moving there.

Also, I assume above that energy costs increase only at the rate of inflation.  If they rise faster, the investment would be even more positive.  I also understand that there are some tax breaks available for such systems.

It’s a bit puzzling that they are not more common.

I am embarking on a project to lower the shipping rates for a business I am involved in.  I am just reading up on it now.  I have found the following links:

Making a Case for a Rate Reduction - make sure to negotiate all the extra little fees like residence shipping, etc.

http://forums.oscommerce.com/lofiversion/index.php?t74335.html

http://www.webmasterworld.com/ecommerce/3449069.htm

 Parcel Trends Survey - This survey has a lot of great information but most important to me was the fact that of the businesses surveyed the average ground discount was 24% for UPS, 30% for fedex, 25% for DHL.  The surveyed companies were pretty big, I think, so those discounts may be out of range for some small companies, but still interesting to know.

A video about lowering your UPS rates.

What Do The Big Shippers Know that Small Shippers Do Not?

Shipping Coach Blog

I am really fascinated and excited by this, although I am somewhat suspicious of his motives.  Pickens Plan - it seems like a remarkably savvy use of online marketing for an old guy.

I’ve been using Twitter for a long time.  I was interested in the twit-out, where people stopped using twitter for 24 hours to protest.  I am going to stop using twitter permanently to protest its general irrelevance.
Two reasons why twitter sucks:

1. No normal people use twitter, by “normal people”, I mean those who don’t live in the bay area and don’t work at a tech startup.  In other words, most of the people who I know.

2. So much spam.  Two of my friends, very nice people, are awful twitter spammers.  Many of their twits are just links to their blog articles or press releases by their company/group.  I already read their blogs and don’t need an SMS notification of each new post.

One of my employees did something slightly awesome yesterday.  He made a good relationship with semi-popular blog and arranged to write some content for it that highlights the products that we sell.  It’s a great situation all-around - great content for the other site, great for us as a business, and interesting work for the employee.

I wanted to make sure that he know his ingenuity was appreciated, so I made sure to explain to everyone at the company (we are small) what the employee did and why it was smart.  I also stopped by the bank and got him $100 cash so that he could do something fun.

We occasionally reward our employees that way - with “surprise” bonuses - sometimes cash but more often a videogame or something a little more thoughtful.  I felt a little weird after giving him the cash, since he was already really excited about his work in a more intrinsic way and I didn’t want to diminish his intrinsic satisfaction.

Then I read this article “Why Incentive Plans Cannot Work” -in the Harvard Business Review way back in 1993.  It is highly salient to startups since, particularly those that are venture-backed, use incentives - stock options, bonuses, etc. to motivate behaviors.

Some highlights from the article:

“Research suggest, by and large, rewards succeed at securing one thing only: temporary compliance. When it comes to producing lasting change in attitudes and behavior, however, rewards, like punishments, are highly strikingly ineffective”

“In general, the more cognitive sophistication and open-thinking that was required, the worse people performed when working for a reward.”

“Jenkins tracked down 28 previously published studies that measured the impact of financial incentives on performance.  His analysis ‘financial incentives’, published in 1986, revealed that 16, of 57%, of the studies found a positive effect on performance”

“Rewards have a punitive effect because they, like outright punishment, are manipulative. ‘Do this and you will get that’ is not really different from ‘do this or heres what will happen to you’ … managers are creating a workplace in which people feel controlled, not an environment conducive to exploration, learning and progress”

“Rewards, like punishment, actually undermine the intrinsic motivation that results in optimal performance”.

The content of this article really “feels” right to me, as a manager.  It is also completely contrary to much of what is practiced in venture-backed startups.

Today hasn’t been a good day. First, my business partner and I got our taxes back from our accountant - not pretty. The problem with bootstrapping a “profitable” business that requires working capital is that increases in working capital are considered as profit by the IRS. That may well be true, but it really makes it hard to grow such a business. While our taxes are about 30% of profit, they are well more than that of our cashflow. Ok, whatever, I can live with that.

However, I was also informed by the government today that I must garnish the wages of one of my employees for $8000 of student loans that he didn’t pay. Now, he didn’t get a degree and it’s not like he benefited at all from the somewhat sketchy school that he was attending. My take: that school probably shouldn’t exist and certainly shouldn’t charge what it does, the bank shouldn’t have lent him the money, the bankruptcy laws shouldn’t be such that student loans cannot be dispatched, and I DIDN’T SIGN UP TO BE A BILL COLLECTOR. Hopefully Paychex knows what to do with this, because I have no idea. I’m not happy about it.

Things could be worse with our government, but they certainly could be better. Movie recommendation - Maxed Out.

I recently had the opportunity to dig around in the marketing effectiveness data of a friend’s company. The results were really interesting, so I figured I would share. This company is an ecommerce company that sells a physical product to consumers online. They sponsor several blogs, one forum, do a significant amount of offline advertising and spend on Google CPC ads. Conclusions:

1. Over the time period organic search on Yahoo and Google generated $100Ks of revenue and cost nothing

2. Google adwords returned $18 of revenue for each $1 spent on ads, around 18x the effectiveness of the offline advertising.

3. The rates on the blogs are not efficiently priced, there is wide variance in cost -effectiveness across blogs.

One issue with online advertising is that there is a limited audience. It is often argued that you reach an entirely different set of potential customers when advertising in a different medium and that you cannot reach the same volume of people online as you can offline. Therefore, while online advertising may have a higher ROI, offline advertising is still important. That may well be true for some very mass-market things that don’t get a lot of search attention, or for companies with a much larger marketing budget, but in this case the company is spending most of their ad money on offline media and getting the majority of their visitors from online marketing.

Someone just asked me how I came up with the offline advertising impact. I used a multiple regression model that I will write about tomorrow.

Another modification - it is important to note that I used the direct sales impact from the online ads and the indirect sales impact from the offline ads.  This isn’t really fair and it actually underrates the effectiveness of online ads (because they have an indirect component as well) - see this HBR article for interesting data on the indirect effect of online ads.

For a while last year I was going to Columbus, OH every week for business and I couldn’t help but notice the huge ambitions of local airline startup Skybus. I have never flown them, but they seem like they are doing interesting things. The most interesting, in my opinion, is flying to really unusual airports such as Chicago/ Gary Airport(GYY), Portsmouth NH (near Boston, Portland and Manchester), Wilmington DE (ILG) which is near Philly and obviously Wilmington, and Niagra Airport (near Toronto).

Airport fees are an overlooked but significant part of airline economics. For example, they were 5.7% of revenue for Southwest in 2007 and 6.3% of revenue for JetBlue in 2007. In many cases Skybus will be the first commercial airline serving these 3rd-tier airports and it seems as though they will get bargain-basement rates. For example, Niagra Airport advertises rates 20% those of JFK for a 737 or A320. Part of the business model of the first discounters (Southwest, Jetblue, Airtran) was flying out of 2nd-tier airports such as Midway (Chicago), Manchester and Providence (Boston), Love (Dallas), Hobby (Houston) and Oakland (San Francisco) where there were lower landing fees and less congestion. Those airports have grown a lot and are now facing some of the problems faced by larger airports.

I am a big fan of alternate airports here in Chicago and I prefer to use Midway over O’Hare since it is 30 minutes by EL vs. 60, 45 minutes in traffic vs.90 and 20 minutes in no traffic vs. 35 from where I live in downtown Chicago. It also has more on-time departures, better dining (potbelly!), and less cancellations (0.02% vs. 0.12% of flights in 2007). I am not sure that I would use Gary since it is quite a bit further than Midway, but if it had less delays and cheaper flights I might. It is also only 45 - 60 minutes away by the excellent South Shore train.

I found some interesting data comparing landing fees at many of the world’s airports. The data was in a PPT published by the Air Traffic Research Society.

Landing Fees for a 747 at North America Airports

Landing Fees for a 747 at Asian Airports

Landing Fees for a 747 at European Airports

Landing Fees for an Airbus 320 (smaller plane, like a 737) at Asian Airports

Landing Fees for A320 At European Airports

Landing Fees for A320 At North American Airports

Per-Passenger Terminal Fees for North America Airports