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Online Payment Processing If you don’t need a full-blown e-commerce solution, PayPal lets you accept credit card payments with a PayPal shopping cart. There are no setup charges and no monthly fees, just a transaction fee of 2 to 3 percent, plus 30 cents–about what credit card merchant-account processors charge. Payroll Services Outsourcing onerous payroll tasks is easy and quite affordable. For a flat monthly fee, online services such as surepayroll.com and paycycle.com do all the calculations, pay and file federal and state taxes, and make direct deposits into your employees’ bank accounts. PayCycle costs $45 to $73 per month for a company with 25 employees, regardless of how often you run payroll (50-employee maximum); Sure Payroll charges about $87 to process the monthly payroll for 25, and can cut payroll expenses by up to 50 percent. Playing Post Office All mail is not created equal, so if you’re paying equally for all of it, you’re probably paying too much. Go to usps.com/businessmail101 for a primer on the different classes of mail and an explanation of the many discounts available for bulk and presorted mail and for things like dropping mail off at a bulk mail center or a central post office. For flat non-letter-size mail, such as catalogs, simply presorting according to Zip code can save you up to 30 percent on postage, and you can save up to 10 cents per pound by dropping it all off at a bulk mail center. And remember, never send a letter if a post card will do–post cards cost 38 percent less to send than first-class mail. Montblanc Pen: because you don’t want to sign a multi-million dollar contract with a 50-cent pen Seal the deal with a more elegant instrument. Pen maker Montblanc distributes its wares through a small network of authorized dealers, so prices are pretty standardized. A new Montblanc StarWalker Ballpoint sells for $216, including shipping, at writewithstyle.com. That’s not a bad price, but you can do better. The recent eBay price was $142, with shipping–with several more up for bidding. Color, light, and air A fresh coat of paint might be the most cost-effective investment you can make in the look and feel of your workplace. And since paint is so cheap, you can always repaint if you’re not happy. For help finding a color scheme, do what professional designers do: Check out the free color forecasting reports published by the Color Marketing Group. To make sure your new color looks right, switch out harsh white fluorescents with “warm white” ones; their fuller-spectrum light will make everything look better. Finally, improve the indoor air quality with bargain-priced planters from big-boxers such as Lowe’s and Home Depot, warehouse clubs, or Ikea. Carpeting Buy or lease modular carpet tiles, such as those made by Interface. While regular roll carpet is cheaper to buy up front, modular tiles can pay off in the long run because rather than having to buy a whole new carpet, you can just replace the worn tiles. It’s easy to take the tiles with you if you move. Plus, they look a lot cooler. Software Put off software purchases until the end of the year, when you’ll find discounts on programs that are being released in new versions. You may also see discounts at the end of a financial quarter. There’s also plenty of free software out there available for download–from e-mail (Evolution) and e-commerce (osCommerce) to Web browsers (Firefox, Opera) and accounting (GnuCash). Two of the best sources of freeware are tucows.com and CNET’s Download.com. Cheap (and Eager) Labor Entrepreneurship is hot these days, and plenty of students are eager to get experience at growing companies. The key is to offer experiences that truly can’t be had at big corporations, such as real responsibility, individual mentoring, and access to decision makers. William Wright-Swadel, director of career services at Harvard University’s School of Arts and Sciences, suggests that companies build long-term relationships with career centers at local colleges and market themselves through campus events and organizations. On MonsterTrak, the largest student job and internship site, you can target your posting to the schools you want to recruit from; the site charges $30 per posting per school, with a discount for multiple postings. Wherever your job posting appears, get it in as early as possible; students typically start thinking about summer internships at the end of the fall term. And remember: Interns are cheap, but they’re not free. Generally, if you’re paying someone, you have to pay minimum wage; for unpaid internships, certain educational criteria often must be met. Check with your state’s labor department for the regulations in your area. Free Consulting Score, the Service Corps of Retired Executives, is a nonprofit partner of the U.S. Small Business Administration that provides free online counseling on everything from accounting to workflow analysis, provided by a volunteer corps of working and retired business owners and executives. Score also offers free one-on-one and team business counseling at 389 locations around the country; find the one closest to you at score.org. Copy, Right Mid-level business copiers can cost $5,000 and up. Because of the high entry cost, and the near certainty that the “latest technology” will be outdated in a year (if not six months), leasing–which often includes an option to upgrade and can cost as little as $50 a month–is usually more attractive. When signing a lease, make sure to clarify the service and repairs included, and what the response time will be. Beware of contracts that require a minimum or maximum monthly number of copies; work out pay-as-you-go terms instead. And remember, you don’t have to buy paper and toner from your copier supplier–you can usually save money by buying these from an office-supply source. And if you don’t expect to make more than 700 copies a month, you probably don’t need a “business” copier at all–you can get by with a combination printer-copier that costs a few hundred bucks. Ink & Toner Deals abound on generic, remanufactured, and even name-brand cartridges. There are numerous online office supply and ink specialty stores–InkSell.com, 4inkjets, Databazaar.com, and InkjetSuperstore.com–that often have better prices than the superstores and printer manufacturers. For example, in a recent search on comparison site NexTag, we found an HP Laserjet 2400 cartridge for $120; the same product retails for $206 at Office Depot. If you’re willing to use refurbished cartridges, you can pay as little as $70. Meanwhile, OfficeMax recently launched a nationwide refill program for inkjet cartridges, which could translate into cost savings of up to 50 percent. Best for Blogging WordPress.org provides a free, easy-to-use tool for adding an easy-to-update blog to your company’s existing website. If you want to go cheap–and skip a formal website altogether–blogger.com (owned by Google) and wordpress.com (not wordpress.org) will host your blog for free. The only drawback: The generic domain name (blogspot.com or wordpress.com) can look unprofessional. Office Furniture Check out dealer show rooms and keep tabs on any floor models you like. Come June, when NeoCon, the huge convention of office furniture manufacturers, takes place, dealers want to get new stuff on the floor–which can translate into good deals on old merchandise. Discounts of 20 percent or more are not uncommon. For general office furniture, check the lower-cost subsidiaries of the big manufacturers, such as Steelcase’s Turnstone line. And don’t forget eBay, where bargains on durable workplace basics abound. Here are some recent examples: 34 Steelcase telemarketing cubicles: $6,700; eight Herman Miller workstations: $3,995; 12 Steelcase office desks: $1,500. Paper, envelopes, pencils, staples and the rest Rather than buying different items from different vendors, consolidate your office-supplies shopping in one place. The big office superstores all offer online order management, free delivery for orders over $50, and loyalty rewards programs. In addition, OfficeMax Commercial Solutions and Staples Business Advantage are free programs that work like managed-travel programs, helping customers track and reduce total office-supply spending through more efficient ordering and discounts for volume buying. Office Depot offers similar services through its Business Services Division. Negotiating an Iron-Clad Shipping Contract The major package delivery companies–FedEx, UPS, DHL–are all competing for the small-business market. It’s up to you to meet with their reps and determine what services you need, which company best meets those needs, and which one offers the best deal. Beware of add-on charges for things like sending packages to nonurban areas and shipping fragile items; shippers today have more than 100 such charges, compared with about 30 five years ago. Many of these fees are negotiable, though it helps if you have what the shippers call “good shipping characteristics”–high volume, packages that tend to fall in the same size category (say, more than 100 pounds), and lots of deliveries to urban Zip codes (which are less expensive to deliver). Smart negotiating can shave 10 to 20 percent off your shipping bill, says Mike Erickson, president and CEO of AFMS, a consulting firm that specializes in evaluating and negotiating business shipping contracts. Indeed, if you do a lot of shipping, it makes sense to hire a consultant, as shipping contracts are often difficult for laypeople to decipher. A company car–plus a tax break Under the Energy Policy Act of 2005, individuals and businesses that buy or lease a new hybrid gas-electric car or truck, or an alternative-fuel or fuel-cell vehicle, are eligible for an income-tax credit of up to $3,400, depending on the fuel economy and the weight of the vehicle. (This credit is in addition to the regular depreciation or lease expense you’re allowed to deduct for any vehicle.) If you buy more than one vehicle, you get a tax credit for each. This tax credit applies to vehicles “placed in service” beginning January 1, 2006. Once a manufacturer has sold 60,000 eligible vehicles, the tax credit for its cars will be reduced, and eventually eliminated. So get on it now. When buying a printer, check out the “print yield” A cheap inkjet may be easy on the wallet today, but it’ll end up costing you more later. That’s because with printers, it’s all about consumables–paper, toner, etc. For example, with a $300 laser printer and compatible cartridge, it costs $30 to print 1,000 pages (black ink only); with an $80 inkjet printer from the same manufacturer, the same print run costs $100. After a little more than 3,000 pages, the more expensive printer has paid for itself. Check out the “print yield” specs for the toner cartridges the printer requires, and divide the price by that number–that’s your cost per page. Let that number, not the cost of the printer, guide you to the real bargains. Retail Space Mall tenants may enjoy foot traffic, but that traffic comes with a steep price tag–incidental costs can run from $18 to $55 per square foot per year. Wherever you set up shop, scrutinize your lease for so-called pass-throughs–charges on top of the basic rent for things like common-area maintenance–and make sure you’re paying a share that’s proportionate to the actual square footage you’re occupying. Another way to save: Minimize your square footage in an expensive retail area by leasing storage space in a cheaper space off the premises. Stress-Free Employees Treating your staff to monthly massages may seem like a needless indulgence, but it can save you in the long run. Research shows that employees are more productive on quantitative tasks after massages and report feeling less stress. There is also, not surprisingly, less absenteeism on days that massages are scheduled. And because office massage specialists provide education about ergonomics and repetitive-stress injuries, you may reduce the costs of such injuries. A 15-minute seated massage–about the time of a coffee break–is all it takes to realize the benefits. On-site massage rates vary by location–expect hourly rates of about $75 and up in larger cities (a massage therapist will typically fit in three 15-minute massages per hour). Go to amtamassage.org and use the locator service to find a qualified provider in your area. Corporate jet: a good option for small groups It’s a bit of a stretch to call a company jet a bargain, but look at the upside. There’s no penalty for booking last minute, so it’s attractive if you make spur-of-the-moment trips. And since jet operators charge by the hour, not per person, a private flight can be a good option for flying small groups (midsize jets can accommodate about eight). Full or fractional ownership requires laying out millions up front, but Sentient and Blue Star Jets‘ SkyCard program offer membership plans that give you planes on demand for less than the cost of fractional or outright ownership. With both companies, you make an initial deposit (minimum $100,000 for Sentient, $50,000 for Blue Star) and funds are deducted as you use flight time (hourly fees start at about $2,000). Deals on PCs Comparison shopping is a no-brainer. But with PCs, you’ll be surprised at how large the price variations are for identical products. A recent search on comparison-shopping site NexTag, for example, turned up about 20 different vendors offering new Toshiba Portege R200 laptops for prices ranging from $1,162 to $2,159. Another useful tool is NexTag’s “Price Drops” section, which tracks the market in a range of tech categories and reveals, for example, that in April, the best price for an IBM Thinkpad T43P abruptly dropped 25 percent. Travel Tips Travel is typically a company’s second or third largest controllable expense, and one way to control it is to implement a managed-travel program. Most of the online booking services have launched programs for small companies. Expedia Corporate Travel ($149 a year) and Orbitz for Business (fees vary according to use) drive down travel expenses by 10 percent or more by lowering transaction fees (an average of $5 per ticket, compared with about $30 for traditional agencies) and negotiating discounted rates with airlines, hotels, and rental car companies. Obviously, the larger the company, the larger the discount a travel service can negotiate. But in some markets, just being able to offer an airline or hotel a 10 percent incremental increase in your company’s business can be a potent bargaining tool. American Express’ small-business travel program (starts at $500 a year; $100 for small-business cardholders) offers discounts on airfares of up to 15 percent on domestic flights and 35 percent on international trips. AmEx also promises to beat any fare you find online. Website Hosting and Design Some broadband providers offer free hosting with their service. If yours doesn’t, consider one of these low-cost options, all of which include easy-to-use design and e-commerce tools and templates to get your site up and running quickly. Yahoo Hosting and domain registration: $12 per month and up E-commerce: $40 to $300 per month, depending on sales volume Homestead Hosting and domain registration: $20 to $50 per month (plus $20 setup fee) E-commerce: $7 to $60 per month Microsoft Office Live Hosting and domain registration: Basic service is free; added features cost $30 a month Web Traffic Analysis Google Analytics is a free and useful Web analytics tool–if you can get it. Right now there’s a waiting list that doesn’t seem to be budging. Fortunately, Google is far from your only affordable option. Check out ClickTracks‘ Analyzer, a basic hosted service that charges $49 per month (or buy the software for $495); Web analytics program SmarterStats 3.0, free for use on a single website (available at download.com); StatCounter, free for up to 250,000 page views; and Site Meter, which starts at $9.95 per month. Numerous free trial versions of other programs are available, too–which can at least hold you over if you decide to wait for your Google spot to open up. Industrial Space Even in the information age, manufactured goods can’t telecommute. That’s why industrial space–factories, warehouses, distribution centers–always costs more the closer it is to large population and transportation centers. Prices decline the farther out you move, but then transportation costs go up–so what appears to be a bargain often is not. The right balance is easiest to strike in less pricey “second-tier” cities such as Columbus, Indianapolis, and Louisville, as well as on the fringes of primary markets–places such as eastern Pennsylvania, lower New York state, and northern Los Angeles County. Aeron Chairs Go to authorized Herman Miller dealers first and think of the advertised price as a starting point. Even if you’re buying just 10 or 20 chairs, you can bargain. “Every contract is individually negotiated,” says Herman Miller spokesman Bruce Buursma. Dealers often have used chairs coming back from leases, which can cost 20 percent less than new ones. Consider lower-cost models too–Herman Miller’s basic Celle chair, for example, offers Aeron-like features for about $499, compared with $699 for a basic Aeron. If you’re not making progress with the brick-and-mortar dealers, go online. Here’s what a recent price comparison turned up (all prices include shipping): New Aeron Chair $699 at officedesigns.com, ultimatebackstore.com, sit4less.com, homeofficesolutions.com (volume pricing available) “Like New” Aeron Chair (floor models or returns) $519 at luxurychair.com, $560 at trendychair.com, $539 at sit4less.com’s clearance section Aeron Look-alikes Sit4Less “E” Chair, $399 at sit4less.com Ergonomic eChair, $319 at luxurychair.com Mesh eChair, $269 at designerseating.com A serious coffeemaker–and serious coffee If you consider a super automatic espresso machine to be a super productivity booster, check out the “outlet” section of wholelattelove.com, which sells manufacturer-refurbished machines at deep discounts–a Jura-Capresso Impresa S9 (list price, $2,400) goes for $1,399, shipping included. As for beans, get the gourmet stuff from old-school coffee roaster D’Amico Foods, which ships nationwide from its store in Brooklyn–at great prices ($6 a pound for the house blend espresso). The best rate on credit cards Start by checking out what your bank offers, then do some comparison shopping. As with personal credit cards, there are numerous no-annual-fee cards out there, so avoid paying such charges unless you truly require the particular services or reward-program benefits of a certain card. At sites like CreditCardGuide.com, CreditCards.com, and MyRatePlan.com (go to the credit card section), you can compare cards and apply online. Fun and Games Nothing succeeds in conjuring that giddy dot-com mood quite like little plastic soccer players. A new Striker foosball table retails for $699. But you almost always can find better deals at online specialty stores, many of which also include free shipping–which is no small matter, since delivery of a foosball table can cost a couple hundred bucks. Here’s a sampling of some of the best deals on office amusements: Foosball Table Striker foosball table $499, shipping included, at justfoosballtables.com Air Hockey Carrom Premium Hydralumina With Scoring, six-foot model $540, shipping included, at christophersgames.com Ping-Pong Table Prince Competitor table tennis table $359, shipping included, at dickssportinggoods.com Pool Table Charleston eight-foot table $1,787, crating and air freight included, at pooltables-direct.com Pinball/Arcade Simpsons game $4,800, with shipping, christophersgames.com 1979 Space Invaders cocktail table arcade game $700 (plus $350 shipping), recently listed on eBay Turn Your Office Into an Art Gallery Why buy pricey art for your office walls when you can rent? A number of major art museums have rental programs–and many will even help you choose the best pieces for your space. The Artists Gallery at San Francisco’s Museum of Modern Art charges about $350 to rent a $5,000 painting for three months; a $1,000 painting rents for $170. Like most museum rental programs, SFMOMA’s program focuses on local talent and has thousands of work in all media; photography tends to be the least expensive option. Other museums with rental programs include Los Angeles County Museum of Art, Portland Museum of Art, the Seattle Art Museum, and the Racine Art Museum in Racine, Wisconsin. Local galleries may also rent to businesses. The Office of Your Dreams Right now, the cheapest downtown Class A rents in major markets can be found in Atlanta, Dallas, Denver, and Seattle–places where $20 per square foot can land you palatial digs that would cost three times as much in New York City. Wherever you live, make sure you keep up with local business news. When companies close, downsize, or move out of town, they’re often left with time on their existing leases. “Subleasing is where a smaller business can really pick up a bargain,” says Andrew Abramson, a senior vice president with Grubb & Ellis in Washington, D.C. Abramson points out that in addition to lower rent, expensive improvements that were made by the previous tenant–such as phone systems and furniture–are often thrown into the deal as an incentive. Meantime, if you forgo a view and instead take lower-floor or obstructed-view space, you can save anywhere from 10 to 30 percent on rent. (Go to grubb-ellis.com/research to check pricing in markets throughout North America.) Location, Location, Location How much do real estate prices fluctuate nationwide? To find out, we searched for Class A office space in three major markets–Denver, Atlanta, and San Francisco. In each city, we found a plush office of about 6,000 square feet (enough for about 20 people) in a fancy, downtown building with all the amenities-health club, concierge services, covered parking, etc. The annual lease rates, of course, were all over the map. San Francisco $37 per square foot Denver $25 per square foot Atlanta $29 per square foot The Wall Street Journal A staple of office waiting rooms everywhere, the Journal does not offer corporate discounts for bulk orders to new subscribers. Check for special offers on the comparison-shopping sites as well as newspaper specialists subscription-offers.com and discountednewspapers.com. And check the paper’s website, too. At the time of writing, an offer for new subscribers made dealing directly with the publisher the cheapest option out there by far (56 weeks for $99); only one third-party distributor was able to beat the regular yearly subscription price of $215. (Note: This special offer was available online only; operators at the Journal‘s 800 number did not mention or even acknowledge this option.) The Clean-Up Crew Any cleaning service you hire should be bonded and insured–if cleaners mess up your stuff, or themselves, you don’t want to get stuck with the bill. Prices for that will be higher than for under-the-table help, but worth it. Remember, cleaning people often work when the office is empty; you need to be able to trust them. Make sure the company does background checks on workers, and check multiple references. Old-school long-distance service Negotiate directly with carriers or go through resellers, or CLECs (competitive local exchange carriers), which tend to price more aggressively and be more focused on the needs of smaller businesses than the large telecoms. There are many sites that let you solicit bids and compare rates, including PhoneSaver.com and BuyerZone. As you compare services, look for one that will bill the shortest time increments possible for long-distance–one- to six-second intervals, rather than 30-second ones. The smaller increments can translate into savings of 10 percent or so. International calling It’s not a substitute for a traditional phone system, but Skype, which lets you make calls directly from your computer, is a useful supplement if international calls are a big part of your phone bill. The quality usually can’t match a good phone connection, but the prices can’t be beat. Calls to other Skype users (through your computer) are free wherever you’re calling from, and calls to landlines and cell phones in the U.S., much of Europe, China, and Japan cost about two cents per minute. Broadband: Why You Need a Broker Unless you have a strong preference for a particular provider, you’ll generally get better rates through a broker–brokers do the comparison shopping for you, and because they buy in bulk, tend to have greater negotiating leverage. Typically, there is no charge to the consumer in working with a broker; instead, the providers pay the brokers a fee. Look for resellers that have been in business at least a few years, and make sure they show you quotes from several providers. Broadband is an extremely competitive market, so avoid getting locked into a long-term contract. Most companies require a two-year minimum commitment–don’t sign up for a longer term. You can solicit quotes from multiple vendors and resellers at comparison-shopping sites. Office Design Most professional designers charge between $75 and $200 an hour. But hiring one can actually wind up saving you money. Designers often see possibilities that you do not. A designer might suggest ways to use inexpensive materials and built-ins–using melamine boards in place of desks, for example–that can help reduce the amount of office furniture you need to buy. And when you do buy, designers get discounts of as much as 50 percent. The trick is to keep your designer on a short leash by defining the task at hand as narrowly as possible. To find a designer, go to asid.org, the website of the American Society of Interior Designers, and click on the “Find a Designer” link. Before You Buy Thanks to the Web, comparison shopping is a cinch. Sites such as Bizrate.com, PriceGrabber.com, Shopping.com, and NexTag.com may turn up the deal you’re looking for on any number of items. The following sites may be helpful for specialized searches. Broadband service Broadband.com Broadbandbroker.com Buyerzone.com EverythingT1.com Business equipment leasing Buyerzone.com Commercial real estate Equityoffice.com Cushwake.com (click on “Property Listings”) Grubb-ellis.com (click on “Properties”) Computers/software Shopper-zdnet.com Shopper.cnet.com Credit cards Creditcards.com Creditcardguide.com Myrateplan.com Newspaper subscriptions Subscription-offers.com Discountednewspapers.com Phone plans and systems Phonesaver.com Buyerzone.com
It didn’t make any sense. Kevin Steele, co-owner of Karaoke Star, a Phoenix retailer of karaoke equipment, noticed that the number of people clicking on his paid search-engine ads had shot from 200 to 800 a day. But despite the apparent jump in traffic, sales hadn’t budged. Steele and his partner, Diana Frerick, had built their business on Internet advertising, and more clicks almost always meant more revenue—which the pair had invested in a new office, more inventory, and a call center to field technical questions. Steele thought he had pay-per-click advertising down to a science. Karaoke Star spent about $2,000 a day on search-engine ads at Google and Overture, a subsidiary of Yahoo—focusing on keywords like “karaoke, “karaoke player, “karaoke song—to generate about $6,000 a day in sales. Suddenly, it had to budget the same amount just to get $3,000. With each keyword costing anywhere between 40 cents and $3 a click, Karaoke Star found itself being nickel-and-dimed to death. “One day we were doing great, says Steele, “and the next it was as if someone had turned off the lights. The problem was click fraud, which occurs when people click on paid search ads with no intention of buying anything. In some cases, the clicker is a competitor that wants to force a rival to burn through cash. Other times it’s someone from an affiliate site that hosts search-engine ads and receives a small commission for every click. It could be a team of users clicking repeatedly on an ad. Or, most commonly, the fraudulent clicks are automated by “hitbot software. Experts estimate that 20% to 35% of all ad clicks may be bogus. Whatever the number, it’s as if thousands of people are charging you for window-shopping. Steele says the fraudulent clicking has cost Karaoke Star nearly $400,000 over the past two and a half years. The paid search ad market is essentially a grand auction. Advertisers bid on specific keywords; the terms with the highest demand fetch the highest prices, and the advertisers that pay the most get the highest placement on the search engine’s webpage. Because affiliate sites earn commissions based on how many clicks the ads receive, there’s a lot of incentive to claim as many clicks as possible. Paid online search is a nearly $3 billion business and it’s easy to see why. Popular keywords can get very expensive very fast. (See “War of the Words, right.) The major search engines all acknowledge that click fraud is a problem. In a recent SEC filing, for example, Google warned investors that “if fraudulent clicks are not detected, the affected advertisers may experience a reduced return on their investment’Šwhich could lead to loss of advertisers and revenue. What’s an advertiser to do? If you think you’ve been charged for bogus clicks, you might be able to convince a search engine to credit your account. The problem is, getting a search engine to hand over a record of your advertising activity is no easy feat. Search engines treat such data as proprietary and are loath to share it. Karaoke Star’s Steele and Frerick, for example, expressed their suspicions to Overture and were given some “token refunds, Steele says. But Overture steadfastly refused to tell them who was behind the bogus clicks. Nor would it give Karaoke Star the data it needed to figure it out itself. Fortunately, Karaoke Star—as well as a number of other online karaoke stores—received an anonymous e-mail tip from someone claiming to be a former employee of Ace Karaoke, a competitor in City of Industry, Calif. Attached to the e-mail, according to Steele, was a video that showed an automated click fraud program employed by Ace Karaoke to target the stores. Frerick and Steele retained a lawyer who has contacted Ace Karaoke, as well as Google and Overture, and informed them of his intention to sue. Why target the search engines? “Because Google and Overture make the most money from click fraud and have the least amount of incentive for taking simple precautions to prevent the fraud, says C. Tab Turner, a plaintiffs’ attorney in North Little Rock, Ark., who represents Karaoke Star. Overture and Google declined to comment on the matter. Ace Karaoke’s owner, David Su, denies the charges. “At this stage, there is no way for advertisers to prevent fraudulent clicks from being billed to their accounts. Unlike Karaoke Star, many advertisers are reluctant to complain out of fear that the search engines, which provide most of their traffic, could blacklist them. “At this stage, there is no way for advertisers to prevent fraudulent clicks from being billed to their accounts, says Jessie Stricchiola, president of Alchemist Media, a click fraud auditing firm in Hollywood. Fortunately, there are alternatives to taking legal action. There are a number of click fraud auditing tools available—including Click Lab, Click Defense, and Click Detective—that are designed to alert you to suspicious clicks. The cost can range from $29.95 to several thousand dollars a month, depending on the amount of traffic your site receives. Or you could hire a consultant like Stricchiola to analyze your traffic and broker a deal with the search engines. But Stricchiola, who charges between $250 and $450 an hour, warns that it often costs more in time and money to identify the problem than is actually lost to click fraud. There are also alternative search engines, such as Brooklyn-based BlowSearch, which guarantees that its advertisers will not receive any automated clicks on their ads—or they’ll get their money back. Of course, BlowSearch gets only a tiny fraction of the traffic of the big search engines and offers less bang for the advertising buck. In the end, you may have little option but to accept fraudulent clicks as a cost of doing business and recalculate your expected advertising ROI accordingly. That’s what Karaoke Star is doing. Of course, it’s also reserving the right to sue. Sidebar: War of the Words What does it say about our culture when the priciest Internet keywords involve hair removal, drug rehab, and bad credit? Here are some of the Web’s most coveted keywords and their average and maximum cost per click paid by advertisers for top position on search engines, courtesy of Googlest.com, a site that tracks advertising on Google. Keyword Maximum cost per click Average cost per click D.C. hair laser removal $145.71 $68.91 Law lemon Wisconsin $119.63 $66.15 Benchmark lending $262.02 $40.36 Yahoo web hosting $330.50 $37.86 Peritoneal mesothelioma $121.27 $36.59 Adverse credit remortgage $96.87 $31.10 Insurance medical temporary $83.22 $29.10 Angeles drug los rehab $60.86 $28.51 Accident car Florida lawyer $61.47 $28.03 Google affiliate $159 $27.11 Resources The consulting firm Clickrisk has a “5-Minute Click Fraud Guide at clickfraud.com. Searchenginewatch.com is full of tips for search-engine advertisers.
It was heralded as the great equalizer, the technological wonder that would put business start-ups and large corporations on the same level playing field. Although things haven’t worked out quite that way, it’s hard to argue with the notion that the World Wide Web is one of the most potent marketing tools in a growing company’s arsenal. Despite, or perhaps because of this perceived power, it can also be a source of puzzlement and frustration. Business owners accustomed to control and accountability often are pained to discover that their websites offer more questions than answers. How many new customers did we pull in last month? Is it serving the needs of the company’s constituencies? What kind of return is the business getting on its Internet investment? Many companies are unaware that the answers to these and other questions are within arm’s reach. Every Web server collects a wealth of data about site visitors, from their Internet Protocol addresses to the types of browsers they use. The server’s activity log can tell you what Web link a visitor clicked on to get there. It can provide the word or phrase that prompted a search engine to cough up the company’s name. It can tell you exactly what a user did on the site — which pages they viewed and the order they viewed them, how long they stayed on the site, and where they went when they left. In raw form, this data is incomprehensible. But easy to use and relatively inexpensive “Web analytics” software can bring it to life, transforming what looks like gibberish into the equivalent of gold. By slicing and dicing the data, these programs make it easy to evaluate the performance of different Web promotions — banner ads, search engine campaigns and e-mail letters — and help you put your money where it does the most good. Analyzing how customers and prospects use your website helps you decide what elements of it are resonating with users — and which parts need work. Such feedback is essential to maximizing your Web ROI, says Bryan Eisenberg, principal of Future Now, Inc., a Brooklyn, New York, consulting firm. “If you make changes without using the analytics,” he say, “it’s like driving in the dark.” How can a growing company with modest resources harness the potential of Web analytics? It’s actually pretty easy. At least a dozen vendors including ClickTracks, Mach 5, Microsoft bCentral, NetIQ, NetTracker, Quest Software, Urchin and WebSideStory offer virtually plug-and-play solutions. These programs are ideal for small and midsize companies whose sites are mainly intended to promote products, generate sales leads, or provide customer service. Prices range from $100 to $900 for programs installed on your company’s computers. Hosted applications cost $20 to $150 per month. Mach 5, Microsoft bCentral, and Quest Software even offer free Web analytics software or services for companies with very limited needs or minimal budgets. Most of these companies also sell more powerful and generally much costlier solutions that are better suited to growing companies with e-commerce “shopping basket” websites. For example, NetIQ’s WebTrends Intelligence Suite, costing $30,000 and up, incorporates data warehousing, multi-dimensional modeling and content management features. Other advanced solutions stress the ability to work hand in hand with other types of applications, such as customer relationship management, database and accounting systems. Heavy-duty e-commerce applications such as Microsoft Commerce Server 2002 integrate Web analytics tools with catalog management and customer profiling tools to identify cross-selling opportunities and target customers with special offers based on their shopping behavior. Bob Chatham an analyst at Forrester Research and an acknowledged expert in Web analytics recently issued a report called “The Web Analytics To-Do List for 2004.” In it, he reminds companies that data alone won’t drive customers to a website, boost sales, or increase the bottom line. However, a better understanding of how users interact with a website can lead to a more positive experience that will turn them into paying customers and ultimately maximize the return on a company’s investment.
Cover Story Entrepreneurs all over the country are taking matters into their own hands and transforming their communities into wired cities. Here’s how you can compete from anywhere Over and over again, we keep coming back to the same maxim: When it comes to growing a business, location matters. Traffic and shipping routes, the availability of skilled labor, tax rates, economic incentives, the presence of nearby universities — they all play a significant role in determining whether your business thrives or dives. Now it’s time to add a new ingredient. When you’re thinking of moving, opening a new branch, expanding markets, or hiring telecommuters, ask yourself this: How wired is the place you’re considering? Can you get high-speed access to the Internet? What will it cost you? How prepared is the workforce to toil in a digital world? Is the area up-to-date enough to lure friendly competitors and colleagues with whom you can share ideas, do deals, and attract employees and financing? (Or, hell, just get your network serviced?) What does it really mean to be connected, anyway? A few months ago, Inc. Technology writers set out to answer those knotty questions. When we began, we thought we’d find the 10 or 20 most digital places in the country and that would be that. But it didn’t turn out that way. Sure, we can tell you where to find the largest number of domain-name registrations (McLean, Va.) and where the highest number of Web-connected households are (Austin). Practically anyone can name the hip dot-com havens — the Washington, D.C., metro area; Seattle; Cambridge, Mass.; Portland, Oreg.; Atlanta; New York City’s Silicon Alley — and the 80-plus places that have adopted Silicon nicknames, like Silicon Sandbar (Cape Cod), Silicon Swamp (Indiantown and Perry, Fla.), and the 10 Silicon Prairies. Not to mention all the cities that have claimed they’re the most “wired,” like Louisville (“America’s Most Wired City”) and Stillwater, Okla. (“The Most Wired City in America”). But what we wanted to know went far beyond those sorts of lists. We wanted to find out not just where dot-coms will spring up next, but how you should think about location if you’re not a dot-com. Where should you look if you’re a savvy company that is adopting modern methods of communicating and transacting business with customers, workers, and suppliers? What we discovered was twofold. First, broadband access — the collective term for rapid connections to the Net by T1, DSL, cable, and the like — is far from ubiquitous, despite the hype. DSL and cable-modem services are available in a meager 5% of towns that have populations of 10,000 or less. Second, all over the country, diverse groups of people are taking matters into their own hands to turn their communities into wired neighborhoods, connected cities, and even digital states. And in the process they are transforming their businesses and improving both the economy and the civic life of their areas. Why should you care? Because regardless of how low-tech your company might be now, the ability to do business over the Web — and very soon with wireless devices — will radically change your business and your industry. Not grabbing every bit of high-tech communication you can get is fast becoming a competitive disadvantage. Consider, for a moment, two businesses in two very different parts of the country. The first is run by Darryl Lyons, a third-generation rancher and the proprietor of Lyons Farms, in Okmulgee, Okla. Last year Lyons started raising and selling registered Angus cattle. (If you like filet mignon and want to know the name of the bull that sired your $49 steak, this is the place to go.) Lyons sold about $140,000 worth of cattle and meat to buyers within a 100-mile radius of his ranch in 1999. But with the help of the Web, he expects to sell his animals and beef to buyers in Brazil, Canada, and other parts of the world. He estimates that revenues will climb to $600,000 this year and to $1.5 million in 2001. But he’s got one little problem to solve before he can get his Web site — www.allangus.com — online. His phone service goes out when it rains, when there’s a “hard snow,” and, he says, “when something critical is happening.” (As if to prove his point, his phone service quit during our interview; he had to call back from a pay phone.) Lyons says that maybe a dozen times a year, the phone goes down for more than a day. Each day it’s down, he loses $3,000 to $4,000 in sales. “When an individual wants to buy a bull for breeding purposes,” says Lyons, “he wants it now.” No phone? No bull. When we spoke, Lyons was considering ditching his ISDN plans and going for a more expensive and faster T1 line, which theoretically would be easier to install. And he was looking at wireless-phone systems, which he hoped might be more reliable than his weather-challenged local phone service is. But OK, you say, that’s a ranch in Oklahoma. They have tornadoes there. It’s not a huge surprise that the digital world hasn’t yet reached Okmulgee. Amazingly enough, however, it hasn’t always reached the most urban places in the nation — like New York City, where economic-development agencies and private developers are trying to promote lucrative spin-offs of Silicon Alley. Flanked on two sides by the massive Brooklyn and Manhattan bridges is a 20-square-block development dubbed with the unfortunate acronym DUMBO (for Down Under the Manhattan Bridge Overpass). Real estate developer David Walentas bought nearly every building in this old manufacturing neighborhood 20 years ago. Now, with the help of the New York City Economic Development Corp. and the Brooklyn Chamber of Commerce, his company, Two Trees Management, is rehabbing its 100-year-old buildings and marketing them to start-up dot-coms and new-media companies. Into this gritty space moved a little, archly funny, venture-funded company called Modern Humorist. Partners and Harvard Lampoon alumni Michael Colton and John Aboud had every reason to believe that their new neighborhood would be as wired as any spot across the river in Manhattan. After all, the city had dubbed the area a “high-tech district.” But it was not to be — despite the fact that Two Trees had tried its best to do its homework. Realizing that fast access would add value to its 2.2 million square feet of office and residential space, the company had gotten a variety of private network providers to lay millions of feet of fiber-optic cable both inside and between the buildings. But when Modern Humorist first set up shop, it had live connections to absolutely nothing. No phone. No Internet. (And no pictures on the walls either, but that’s another story.) The company quickly got Internet access — using a T1 line — with the help of a sweating, cursing, but determined worker from Gillette Global Networks, which had invested more than $500,000 in wiring the neighborhood. But it took more than four months for Brooklyn’s local phone-service provider to hook them up. The problem: Brooklyn is still an outer borough, and DUMBO’s inhabitants — at least half of which are start-ups with fewer than 100 employees — don’t have much clout with the large telecommunications companies, says Joe Chan, a Brooklyn Chamber of Commerce honcho who is marketing DUMBO. And the telcos had been loath to invest in infrastructure for what they thought might be a handful of tiny, unprofitable dot-coms. Not surprisingly, Aboud says that was the wrong attitude to take. “The new economy, if you believe in that construct, is made up largely of 10-person companies. It’s a start-up world. The degree to which unnamed telco monopolies can be limber and aggressive in servicing those kind of companies, the better for the economy as a whole,” he says. After relying on cell phones for the first few months, Aboud, Colton, and their growing team of comedy writers finally got the local phone company to activate their service. How’d they do it? They believe it didn’t hurt that they publicized their plight; they told their story to the insider magazine Silicon Alley Daily, which published a parody of its own on the problem. (Ever heard of “Hell Atlantic”?) And they got some help from Chan, who called the phone company on their behalf. Today, Two Trees and the City of Brooklyn are aggressively promoting DUMBO as the next Silicon Alley. With rents of about a third of what people are paying in Manhattan and the promise of high bandwidth (not to mention high ceilings and terrific views), the area may well live up to its billing. That kind of thing is happening all over the country as entrepreneurs take matters into their own hands to get themselves wired, like Darryl Lyons, or turn to public-private partnerships, like DUMBO, for their new-economy infrastructure. Wiring a community can make a world of difference to the area’s economy. In Tacoma, Wash., long a stepsister to glamorous Seattle, the municipally owned electric utility installed a fiber-optic network that covers 180 square miles and in the process brought new businesses and economic vitality to a place that was once bleakly described as “postapocalyptic.” (See ” On the Wired Front.”) Evanston, Ill., has taken a different tack toward wiring its residents and businesses. A private organization with a mission to make civic life more vibrant, city services more efficient, and businesses more competitive has created E-Tropolis Evanston on the Web. (See ” Parallel Universe.”) Time will tell what effect this virtual city will have on its real counterpart. In the meantime, its developer is fielding calls from numerous other cities that want to build their own E-tropolises. We also took a look at what’s coming up next. Though a digital infrastructure is necessary for the new economy, it’s not sufficient: what brings about transformation is the people who can create in innovative and collaborative ways. Writer Samuel Fromartz takes a look at the thoughtful teachers who work at the Perry School Community Services Center, in Washington, D.C., helping inner-city kids learn the skills that companies of the future will demand. (See ” Tomorrow’s Workforce.”) As we discovered, it doesn’t take a large telco or a government agency to get a community wired. Electric and gas utilities, economic-development agencies, chambers of commerce, private developers, and passionate volunteer groups are creating wired communities and helping to make both fast access and 21st-century skills widely available. What’s truly exciting is that these initiatives are already paying off today, in ways both profound and practical. At the Perry School, 17-year-old Vincent Hawkins, who, as he says, “couldn’t get a job at Blockbuster” before attending the school’s Networked Learning Center, is now inventorying PCs and teaching younger kids how to use computers. And in Brooklyn, John Aboud still sounds just a bit amazed at Modern Humorist’s good fortune. Due in part to the affordability of space in DUMBO — and the availability of broadband connections — Aboud and Colton have the resources they need to grow their company. “By the end of the year we might be up to 15 people or so,” says Aboud. “Certainly, by the third quarter 2001 we will have hired every human on earth.” Elaine Appleton is the editor of Inc. Technology. Send your comments to email@example.com. Please e-mail your comments to firstname.lastname@example.org.
Cover Story How one inner-city program is trying to give kids the skills they need — and the ones you need, too Washington, D.C. One evening in June, 17-year-old Vincent Hawkins was clicking through a Web site he had constructed, which was devoted to two of his passions: professional wrestling and an animated television show known as Dragon Ball. Nothing unusual for a teenager, except the setting. He was sitting at an IBM PC with a Pentium II processor in the Perry School Community Services Center, located in the neighborhood of Washington, D.C., known as Northwest No. 1. The area’s grim moniker is one of the legacies of a 1960s urban-renewal plan that had the unfortunate but not uncommon result of rendering the area economically desolate, making it the second-poorest area in the nation’s capital. The center is housed in a former public-school building that had been abandoned for more than 25 years before a consortium of community organizations reclaimed it. In 1998, the Perry School began offering health care and then in 1999 added social services, job training and placement, day care, and after-school programs, including computer instruction at its Networked Learning Center. The school is just around the corner from a block of 29 newly built owner-occupied town houses, one of two affordable-housing projects in the predominantly black neighborhood. The Perry School and the new houses are the exceptions, however, in an economic backwater just five minutes from the Capitol, an area where the median income is $12,400 a year. There are more than 1,500 units of public and subsidized housing within half a mile of the center. There’s not a major supermarket or drugstore nearby. Hawkins, a handsome, soft-spoken youth with a powerful athletic physique, was dragged into the center by a friend earlier this year when high school football season was over. Hawkins didn’t have a PC at home and had little exposure to computers at school, although he had tried surfing the Web at a public library. That lack of computer literacy had already affected his job prospects. “When I applied for a job at Blockbuster last summer, they asked me, ‘Can you use a computer?” he recalls. “I said, ‘I can type my name. That’s about it.’ No one would hire me.” Since then Hawkins has attended an after-school computer-learning program at the Perry School. But the aim isn’t simply to help him qualify for a job at a retail store, although that could well be an option. This summer, after several months in the program, Hawkins was teaching younger grade-school-aged children at the center. A few weeks earlier he’d made what was for him an unheard-of $10 an hour helping to inventory all the PCs in the community center. With several other teens, he checked available memory, hard-drive space, and network cards to see whether the machines could be upgraded. “We were competing with each other to see who could do a PC the fastest,” he says. “I finally learned all those things people were talking about with computers.” A talented football player at Dunbar High School in the district, Hawkins still hopes for a potential college-sports scholarship or a career in acting. But just in case those shoot-the-moon dreams fail to pan out, dabbling with his Web site and creating digital movies with his classmates are helping him acquire the knowledge that might open up broader opportunities, ones that will allow him to leave the neighborhood that the Perry School serves. “We’re bringing technology to areas where people don’t have access to it,” says Networked Learning Center director Kelly Gainer, a compact and energetic young woman who speaks passionately about the program. “And they’re not just learning computer skills. I expect them to go beyond that so they can have the confidence to go beyond the average job.” “They’re not just learning computer skills. I expect them to go beyond that so they can have the confidence to go beyond the average job,” says Kelly Gainer, director of the Networked Learning Center. Gainer had been working as a manager at MCI for five years when she read an article in the Washington Post with the headline “Sometimes Money Is Not Enough,” which featured an inner-city high-tech program called Martha’s Table. She quit her MCI job and worked at Martha’s Table for two and a half years before leaving to head up the Perry School program in 1998. With two assistants and 15 PCs, Gainer runs a program for children ages 6 through 13, heads a program for teens, and oversees an adult job-training workshop. “This is my calling,” she says simply. Gainer isn’t merely a gatekeeper of information and knowledge. She’s more like a coach, urging students to figure things out, work with others, make decisions, try, fail, and succeed — whether the subject is building a Web site, editing digital photographs, or creating an animated story. “The learning is so much richer and so much more real because this is how you participate in the world,” says Candy Taaffe, learning program specialist at the Morino Institute, the lead organization that helped create the Networked Learning Center under a two-year pilot program. “You ask questions, you create, you’re critical of images that are put in front of you. This type of learning is very different from a kid sitting in front of a computer with headphones on.” It also provides the kind of critical knowledge that is in high demand in the new economy, not least of all among fast-growing start-ups. Those companies want employees who can take initiative, work well in teams, attack problems, make decisions, and accomplish tasks. In short, they want workers who know how to learn. “There isn’t a digital divide; it’s a cognitive divide, between those who can solve problems and those who cannot,” says Jane M. Healy, author of Failure to Connect: How Computers Affect Our Children’s Minds – and What We Can Do About It. “There’s a schism as the workplace demands more complex cognitive skills for the jobs of the future.” According to the Department of Education, there are 257 federally funded community-technology centers in the nation. Even so, President Clinton has requested $100 million for fiscal 2001 to fund 280 more. The Perry School’s center didn’t start out with the express goal of changing the way its students thought. Rather, Paul McElligott, the executive director of Perry School Community Services Center Inc., says it began with a simple request by community members to help them learn computer skills. But two years ago, as the Perry School began talking with the Morino Institute about a technology center, it became clear that the facility would become more than a bunch of PCs, printers, and part-time instructors. While researching her book, Healy found that technology-education programs that simply offered computers were wanting. Educators were often enamored of glitzy technology but too often failed to integrate it into the school curriculum in a meaningful way. Part of that had to do with the educational software that companies were developing. Students were often reduced to pointing and clicking through less-than-inspiring exercises with the real goal of “winning” the chance to play a computer game at the end. Robert Price, a former elementary-school teacher from Brooklyn, N.Y., also works with school districts and nonprofits, including the Morino Institute, to incorporate technology into their learning programs. He too has found that schools often fail to consider the way that computers will be used within the curriculum. “The biggest debates in school districts are over whether to buy Macs or PCs,” he says. “What they aren’t talking about is what they’re going to use the computers for.” The Morino Institute, based in Reston, Va., was founded by former software entrepreneur Mario Morino, who wanted to fund inner-city after-school programs to test a different approach to improving computer literacy: Could the Internet be used both to make a nonprofit organization more effective and to improve its after-school learning activities? “We want kids to be gaining experience and skills so they can participate in the new economy,” says Candy Taaffe, learning program specialist at the Morino Institute. The institute chose the Perry School and three other nonprofits for its two-year Youth Development Collaborative Pilot. The organizations would be linked by electronic mailing lists and Web-based communications so that all four centers could share experiences, lessons, and problem solving. “It’s clearly enhanced the capability of all the organizations,” says McElligott, who had not used E-mail himself until 1998. The institute also helped design the actual centers, spending $175,000 to $200,000 on each for the first-year start-up costs, which included hardware, networking, high-speed Internet access, and software. Many of the instructors in the after-school program didn’t have the educational skills to develop lesson plans or even deal effectively with the kids. So last year the institute spent another $30,000 to hire educational consultants from the Bank Street College of Education, the Center for Children and Technology, and the National Urban Alliance, all in New York City. The consultants focused on helping the instructors improve their educational techniques and also provided examples of the ways that computers could be used in project-based learning. “Before they arrived, we would spend about two weeks on a lesson plan,” Gainer says. “Now we can create one in 20 minutes if we have to.” Price, the educational consultant from Brooklyn, for instance, ran workshops that included ways to use digital cameras and animation programs in projects. But he also focused on skills, such as how to foster group dynamics or manage the creative chaos of a classroom without stifling it. Gainer then put the lessons to work at the Perry School. Children used a digital camera to take photos of one another, edited them using Adobe Photoshop, and created captions for them on the computer. They then printed out the results and plastered them across their schoolhouse walls. In another instance, the older-teen workshop made a 30-second film on playground violence, first deciding on the functions they needed to fill (such as director, writer, and actors) and then collectively working out storyboards and a production schedule for the short drama. Students also learned to use a program called Kid Pix to create animated stories, which they did last winter for a monthlong Christmas project. They’ve used Microsoft Word to write reports and Excel spreadsheets to graph out classroom opinion polls, such as “Which cookies are most popular?” “They really liked that one because they also got to eat the cookies,” Gainer says. “We’ve been thinking about computers as a tool, in the same way we think about a pencil, a crayon, and reading aloud,” Taaffe says. “The computers are not the center of the activity; they kind of fade into all the activities the kids are doing there.” Nurturing that philosophy is crucial if a computer-learning center strives to offer students more than just the technical nuts and bolts of working on the machines. “You can use technology to support a kind of drill-and-practice learning that will raise standardized-test scores among students who really do it a lot,” says Cornelia Brunner, associate director of the Center for Children and Technology, in New York City, who also worked as a consultant for the Morino Institute. “The problem is, they haven’t learned a whole lot.” Brunner argues that such a rote, skills-based approach will actually increase the digital divide because it fosters a more rigid type of learning. Students who learn within this model won’t develop the ability to work with others, think critically, and expand their creativity, she believes. Instead, they will be trained for the repetitive tasks — like data entry — generally found in low-wage jobs. A more holistic approach, however, is harder to teach — it’s more time-consuming and more expensive. It’s also more difficult to measure. Donors or parents looking for concrete results might not be able to assess group interaction, problem solving, or research skills as easily as multiple-choice tests measure rote skills. “You have to be more patient,” Brunner says, “because it’s part of a larger developmental process rather than a single result tied to a single intervention.” But the prize, proponents believe, is also that much greater. The process of a child’s creating and revising a project amounts to “huge ownership of the learning process,” Taaffe says. “They’re getting opportunities to have opinions and make those opinions known to their community and outside world.” To be sure, a teen like Hawkins who can now build a Web site, create a spreadsheet, and use E-mail to communicate has the skills to work in a good-paying job, let alone at a Blockbuster outlet. And in a neighborhood facing the daily challenges of poverty and crime, the value of those skills cannot be emphasized enough. “We want kids to be gaining experience and skills so they can participate in the new economy,” Taaffe says. “But I also want to see kids having experiences where they are gaining self-esteem and confidence. Here they’re actually creating something, teaching others, and thinking about the ways they can become productive citizens.” Samuel Fromartz is a freelance writer based in Washington, D.C. 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Change creates opportunity, and the Internet is producing both. But that doesn’t mean the only opportunities are in the world of dot-coms People generally don’t come to North 12th Street in Brooklyn to look for the new economy, but if they did, they’d find plenty of evidence of its impact. Here on the banks of the East River, we have two giant warehouses with 50-foot-high ceilings; each one is the size of a football field, and an even bigger one is under construction. What’s inside? Paper, billions of pieces of paper, sorted into files and packed into boxes for safekeeping. You probably don’t think of paper as a major by-product of the new economy. It was only a few years ago, after all, that people were talking about computers’ eliminating the need for paper altogether. By now we were all supposed to be working in paperless offices, storing our records on magnetic tapes or CD-ROMs. In fact, computers have had the opposite effect. For one thing, they’ve made everybody more productive. As a result, there’s been a huge increase in the volume of documents being cranked out, much of which winds up on paper. A lot of those paper documents have to be saved for one reason or another, but — with the price of real estate so high, particularly in business centers like Manhattan — it’s too expensive for law firms, accounting firms, banks, and the like to store records on their premises. So, thanks largely to the computer revolution, the records-storage business has exploded in the past decade. That’s typical. Listen, change always creates opportunities, but they aren’t necessarily the ones you expect. Right now, we’re going through a period of tremendous change because of the Internet, which is affecting every business for better or for worse. Some businesses it has unquestionably hurt. I’d think twice, for example, about opening up almost any kind of retail store these days. On the other hand, the Internet has given businesses like mine a tremendous boost — and not because we book a lot of orders online. What’s happening is that our customers are becoming more conscious of security. Every time a hacker breaks into a company’s database and destroys, alters, or steals confidential information — or, for that matter, every time a powerful new computer virus appears — people are reminded of how vulnerable their electronic records are in the digital age. How do companies respond? They save more paper copies of their records. During the past five years, I’ve seen steady growth in the volume of new documents being sent to us by the same customers from month to month. Part of the increase may be due to rising productivity, but security concerns also play a role. Our customers feel better knowing that their vital documents are safely tucked away in a secure location off the company’s premises. By the same token, starting a business online isn’t the only way — or even necessarily the best way — to take advantage of the opportunities being created by the Internet. In fact, one of the best new business opportunities I’ve come across recently doesn’t even require that you have a computer. I first heard about the business from my friend Jim, a salesman for the company that provides us with our software. “You’re always interested in new businesses,” he said. “I’ve got a great one for you.” He’d discovered it while visiting another customer, a records-storage company in Philadelphia that had branched out in response to customer requests. The customers had been looking for a place they could send boxes of confidential records to be destroyed with absolute assurance that no one would see the contents. The owner of the storage company had decided to set up what he called a “secure” document-shredding business to provide such a service. After five years his shredding business was bigger than his records-storage business and was growing like gangbusters. Jim’s story piqued my curiosity. We, too, get requests to dispose of documents for customers. There’s one customer who every week sends us 100 boxes taped shut, with the words Destroy Immediately written on top. We send them to a paper recycler. I’d never thought of starting a company to handle the problem. Frankly, I didn’t know that secure document shredding was even a type of business. After listening to Jim, however, I was interested in finding out all I could about it. So I began to investigate, working closely with my friends Bob and Tracy, whom I’ve been advising in their search for a new business venture. (See ” The Road Not Taken,” March 2000.) We visited the company in Philadelphia. We checked out the Web site of the trade group, the National Association for Information Destruction Inc. ( www.naidonline.org). We contacted a franchisor in the business and met with one of its franchisees. We went to see another secure document shredder in New York City. What we discovered was an industry in its infancy. Although document shredding has been around for a long time, this particular approach to the business is relatively new — less than 10 years old. What’s more, it’s growing as a direct result of the heightened security consciousness that is part of the new economy. Companies are increasingly worried about what happens to the documents they want to get rid of, and with good reason. Consider the recent case of the word-processing temp who rummaged through the garbage (among other things) at Goldman Sachs & Co. and Credit Suisse First Boston Corp. and came up with insider information that he then spread by means of the Internet, earning himself and his accomplices more than $8 million in illicit gains over two and a half years. Goldman Sachs and CS First Boston are hardly alone. Brokerage houses, banks, law firms, big consulting businesses — they’re all churning out mountains of paper documents that could spell trouble if they fall into the wrong hands. What do you do, for example, with 100 extra copies of a 50-page draft of a merger agreement? That’s where the secure document shredders come in. Some of them have specially equipped trucks that pull up to an office and shred the documents on the spot. Other shredding companies send in uniformed service people who collect the documents from locked receptacles and transport them to a central location, where they’re shredded en masse. Either way, the shredders are providing their customers with something that’s as scarce as typewriters these days: peace of mind. And customers are willing to pay for it. After three months of research, I’m convinced we’ve found a business that’s about to take off. How do I know? I can see the gross margins that some of the shredding companies are getting — 70% or more. Those are the kinds of margins you generally see only when an industry is very young and its product is in great demand. With few suppliers around, companies can get away with charging extremely high prices. It’s a bad idea to do it, in my opinion, because you leave yourself wide open to competitors, but a lot of people can’t resist the temptation to charge as much as the market will bear. In any case, I think the opportunity is so great that I’ve teamed up with Bob and Tracy to start our own secure-document-shredding business. How will we do? Stay tuned. Over the long term, however, I’ll take our chances against those of almost any dot-com. Norm Brodsky is a veteran entrepreneur whose six businesses include a three-time Inc. 500 company. This column was coauthored by Bo Burlingham. Previous Street Smarts columns are available online at www.inc.com/incmagazine/columns/streetsmarts. Please e-mail your comments to firstname.lastname@example.org.
E-Diaries How I cracked the San Francisco real estate market in six weeks and lived to tell the tale. The San Francisco Bay Area has its own urban myth: that of a dot-com CEO who finds a killer loft for his company in the South of Market neighborhood and pays monthly rent of just a dollar per square foot. This CEO is a bit like the Loch Ness monster or Sasquatch: lots of people claim to know someone who knows someone who’s seen him. If you believe he exists, you might want to buy the bridge I’m selling in Brooklyn. And, yes, I’m asking for options as part of the deal. My cofounders and I lucked out a year ago when we started Gazooba, a company that allows Web businesses to reward visitors who refer friends to their sites. The three of us had been working in the New York office of a Web-consulting company called Netyear Group, which also has digs on the West Coast. Netyear agreed to sublet some of its space to us, and since we were young and poor and shining with virtue (and since Netyear owned some of our stock), it also threw in the use of a few computers and nobly renounced a security deposit. Sweet. That 1,500 square feet was acceptable when the company consisted of just me and my cofounders, Zen and Shanti. But by last December our ranks had swelled to 14 people. It had reached the point that every time we added a desk for a new employee, we had to throw out some other piece of furniture. We’d already dumped three couches, and I feared for the conference-room table. Having read in The Industry Standard that office space in the Bay Area is harder to find than venture-capital money, I hoped to gain some look-around time by extending our lease, which was due to run out in February. Netyear was moving out, so I would have to appeal directly to the company from which it leased space: Japanese-owned Trans Cosmos USA. Both Trans Cosmos USA and Netyear began life as U.S. subsidiaries of Japanese companies, so I thought we’d get good treatment. Confident of a warm familial reception, I made an appointment to speak by phone with Kohara-san, the man in Trans Cosmos USA’s Seattle office who holds sway over these matters. I dialed Kohara-san’s number, blissfully unaware that our fate had already been sealed. The previous month some representatives from a Japanese company called Hikari Tsushin had visited Gazooba to discuss a possible investment. Nothing came of it (we weren’t ready to expand to Japan), and we innocently bid them good-bye. Who knew that Hikari Tsushin and Trans Cosmos are Japanese rivals, competing with each other to invest in U.S. start-ups? Somehow the news reached Trans Cosmos’s top dogs in Tokyo that Hikari folk had been in their building at our invitation, which sent their corporate girdles into a collective twist. Having lived in Japan myself, I understood the significance of Kohara-san’s gently sucking air through his teeth throughout our phone conversation. We were screwed. With just a month and a half left before we were out in the street, I sought advice from our board. One member, a former CEO, called in a favor and hooked me up with her favorite commercial real estate agent, a British gentleman named Paul Middle who normally works with much bigger fish. I told Paul we were looking for 6,000 square feet in either the financial district or SoMa — South of Market — the neighborhood that is to dot-com companies what dropped gelato is to ants. As we walked to our first appointment, Paul asked me what I expected to spend. I told him that our current space cost us $3.80 per square foot, and I hoped to get that down to $3. He stopped dead in his tracks and stared at me as though I’d suggested building an office for ourselves out of twigs and straw. “Andy,” he said, “before we go any further, we need to educate you about this market. First, you will not get anything for $3 per square foot. Four dollars is in the realm of possibility, but it’s a pretty small realm as realms go. Second, since you’re a start-up, be prepared to pay up to 12 months’ rent up front. While you’re at it, be prepared to pay up to 24 months’ rent as an enhanced security deposit in the form of cash or a letter of credit. And while you’re at that, understand that you’ll be competing with five or six dot-coms for every space you see. Oh, and you realize they’ll want stock options, yes?” My expectations now six feet under, I followed Paul to the first vacant space, a nothing-to-write-home-about office building South of Market. Paul acknowledged that the space lacked distinction but assured me of the building’s pedigree. (“Microsoft is a tenant,” he said in hushed tones, “but there are a bunch of dot-coms, too.”) Recognizing that choosiness was not an option, I put in a bid at the asking price: $4 per square foot. Wonder of wonders, the company that was subletting the space sounded ready to accept it. Back at the office, I strutted around like the ant who moved the rubber-tree plant. “Vacancy rate, schmacency rate,” I said dismissively, regaling Zen and Shanti with my accomplishment. “What’s everyone making such a big deal about?” Then the phone rang. It was Paul, telling me the deal was dead. The sublessor had been pressured by one of its investors to give preference to a dot-com in the investor’s portfolio. Once more, the abyss loomed. I had promised Paul an exclusive, but with only a week to go before our deadline, I told him I’d need to enlist more help. That help came in the form of Charles, recommended by our benefits consultant as “an out-of-the-box thinker.” I wasn’t entirely sure what that meant as it applied to real estate, but I found out when Charles led me to a half-empty women’s clothing store, a kind of downscale Merry-Go-Round where the floor was strewn with dress racks, curtains still hung in the dressing-room stalls, and the ubiquitous mirrors reflected my dismay. “All this place needs is a few alterations,” said Charles, gesturing toward the large storefront window. “To me it says Internet.” Our next stop appeared to be a former mechanic’s garage. The room was dark and cold, with oil stains on the concrete floor. Charles looked surprised when I asked to move on. “Andy,” he pleaded, his arms spread wide, “you’ve got to imagine this place with carpeting!” As the end of January drew near, I began to wish I was driving something larger than my new Volkswagen Beetle, since it looked as though I’d shortly be working out of the front seat. Then Paul called me with a new lead: a law firm in the financial district was looking to sublet 6,000 feet. The call came during a marketing meeting. I hightailed it out of there so fast my chair spun. The law firm was asking $45 per square foot per year. Two bids were already in, so I offered $50. Paul prepared the bid package and informed me that, of course, the prospective landlords would want to review Gazooba’s financials and our business plan. I offered to send my dental records if it would help. Dazzled by either our Web strategy or my lack of cavities, the law firm offered us a six-month lease followed by monthly extensions. It wasn’t great, but at least the lawyers didn’t ask for stock. They also wanted five months’ rent up front — about $120,000 — and promised just 60 days’ notice in the event they wanted us to scram. Those last two conditions seemed out of line to me; I was determined to gain at least some concession. In the property manager’s office, Paul and I met with the law firm’s office manager and real estate agent. Drawing on my business-school negotiations training, I disguised my plea as an offer. “I would prefer 90 days’ notice of the need to vacate,” I told the agent, “but if you can’t manage that, we would accept a reduction in the up-front rent to four months.” The agent smiled back. “Sixty days is the best we can do,” she replied. “And since you want to discuss it, we’ll be asking for six months’ rent in advance.” “Thank you,” I said. “Would you like a Gazooba T-shirt?” Andrew Raskin is the CEO of Gazooba, which is headquartered in (drumroll please) SAN FRANCISCO. E-Diaries: Episode 1: A New Beginning The Game of the Name Take My Job Offer, Please. Pretty Please There’s No Such Thing as a Free Launch Gimme Shelter Bridge Financing over the River Scared Let the Good Times Roll There’s a New Man in Town I Really Must Be Going Please e-mail your comments to email@example.com.
His friends call him “I.G.,” but those aren’t the only initials used by Indrajit Ghosh, founder of Atlas Communications, a network-engineering consultancy based in Brooklyn, N.Y. He uses the acronym PITA — for “pain in the ass” — for the tiny red rotating ball that substitutes for a mouse on his laptop, an IBM ThinkPad. Specifically, Ghosh struggled with scrolling, pointing, and clicking when he used his laptop for PowerPoint presentations. The PITA often caused him to “fumble around,” he says, during the shows, especially when his audience requested that he return to diagrams he’d already shown. Ghosh tried plugging a regular mouse into his laptop, but the lack of big-enough surfaces on the road and during presentations made it cumbersome to use. Then last fall, on a train ride to see a customer in New Jersey, he spotted a commuter whose laptop was hooked up to a mouse that was about half the size of others he’d seen. An armrest served as a mouse pad. Ghosh learned that the device was called, appropriately, the Mini Mouse (from Targus; 800-998-8020; $21.99). He bought one online as soon as he got home. “It’s made my life so much easier,” he says, adding that he too now works on armrests with ease. Best of all, Ghosh thinks the mouse has upped the value of his presentations — and by extension of his company. “I have a lot more control over the screen,” he says. “It makes us look a lot more professional.”