The Newest Wave

A traditional business plans incorporates start up costs, production, marketing, distribution and sales.  When a new twist on a classic marketing plan is applied using digital media products, web stores, and direct sales from the web store, a more profitable business is available. 

Three years ago Evan Ehat, a full-time graphics designer and part-time web entrepreneur, developed unique web application.  He was making a online mall for a private client.  The web page was well designed and had a smooth flow to the store front, Mr. Ehat is noted for this.  Mr. Ehat felt the web site was missing a critical element.  Something to make the products seem to “pop off the page.”   He decided to write code to enhance the pictures on the page.  The program would start make a larger version of the picture framed in a window after being selected with the click of the mouse, a larger version of the picture would appear, with a professional fade in. When a subsequent photo is selected the previous photo fades out and the new photo fade in.   This made the items on the page look more professional.  The slow fading causes the viewer to assume that there is more quality to the web site and the items listed to have more value too.

The program Mr. Ehat wrote wasn’t simple.  It was a time-intensive project and was written in Javascript.  He wrote extra code to allow other users the ability to simply and quickly adapt it to their page.  The extra time Mr. Ehat spent on the program wasn’t part of the contract that the web client had hired him for.  Mr. Ehat implemented the code anyway and the client was extremely pleased by the remarkable web site.  Mr. Ehat initially envisions that he would reuse the code in future projects.  Later he realized other web creators could use the code in many different applications (JPG, 2008). 

In order to facilitate the marketing of his code, Mr. Ehat created a web store.  He showcased pages using the code so potential buyers would see its capabilities. He then created information pages to teach other web programmers how to implement it.  There are other tools for creating web stores but each has limitations.  He demonstrated what each web tool did and didn’t not do.  The final example showed a solution using his code.   The final page is point of sale page, using Pay Pal to facilitate the transaction.  The selling price may have been dumb luck but proved to be innovative.  Mr. Ehat sells rights to his code for a dollar (E. Ehat, 2008). 

Successful businesses often start without well-developed business plans, experienced leaders, or even SBA funded loans.  When hotel and restaurant owner Colonel Hartland David Sanders witnessed his customer traffic reduced from the completion of Interstate 75, he traveled to find franchises. Using his first social security check to fund travel expenses, his business started humbly but grew into an empire.  The business plan simple: teach a restaurant owner his amazing chicken recipe and receive a commission on each sale.  The opportunity for restaurant owners was unique because initial investment was only their time to learn the cooking method.  Potential customers were eager participate.  Startup costs can be a critical setback for new businesses and by minimizing these costs; Colonel Sanders had tremendous growth and success (Find a Grave, 2001).  Today KFC is international, popular, profitable, and the image of Colonel Sanders is still in the public eye.

Like the popularity of fast food, intellectual property has become medium for growth.  Producing intellectual property is often a risky venture because of substantial startup costs.  The return on investment is slower because sales revenue isn’t achieved until after the product is taken to the checkout counter.  Movies, audio recordings, and computer programs may have enormous costs to create, but if the product is a good seller, the profits are outstanding.

For example, Intellectual Property, Inc. a fictitious company develops a new DVD title.  The start-up costs are substantial–just over a million dollars.  To generally itemize the development budget: fifteen hundred dollars to replicated a thousand DVDs and just under a million to create the DVD for replication.  After replication cost there is marketing, distribution,  and, finally, the sales.  It would seem that if the replication costs are low, most of the sale dollars is profit—or at least profit after the huge creation costs are offset.  Yet, most of the sales dollars goes to the distribution.  The wholesaler and retail store get a majority and the Intellectual Property, Inc is left with about a dollar per DVD. 

Although the start-up strategy of the Colonel and Intellectual Property, Inc. is vastly different, the profits are similar and each business may average only 10% of their gross as profits.  Colonel Sanders had to pay for traveling expenses and Intellectual Property, Inc. has to develop their DVD.

Marketing online can eliminate some business expenses, such as distribution.  This isn’t practical for every business, however–KFC’s chicken isn’t a product for digitizing and distribution via email.  There are advantages to marketing on the Internet.  For example, the Internet’s users never sleep.  This makes an automated storefront more profitable than a traditional bookstore.  There are fewer employees in an Internet storefront.  If an Internet store carries digital products, then customers can buy and receive products in nanoseconds instead of waiting days for shipping.  Currently, owner’s manuals, audio books, software, and eBooks can be purchased and downloaded in seconds and a growing population prefers it (Tiernan, B., 2000).

Mr. Ehat’s method is unique because it combines business strategies.  Colonel Sanders had a career of low income and wasn’t prepared to ask another restaurant owner for a large upfront investment.  Mr. Ehat’s method is similar.  Charging a dollar for the code eliminates the financial risk.  An experienced programmer may spend a full week to reverse-engineer the code. Unlike Intellectual Property, Inc., there isn’t a significant distribution cost.

Not everyone is a web programmer, but many have unique skills.  A well-written paper, similar to that required for college, enhanced with photographs or video, could be marketed for a dollar.   Bill Jehl, an entrepreneur based in Georgia, wanted to create a video to show others the steps to building an electric guitar.  With little experience in video production, editing or eTailing, he created a video diary while making a noteworthy custom guitar.  After six month of learning, his intellectual property was replicated and marketed through eBay.  To offset the replication costs he charged about twenty dollars and another five for shipping.  After ten months Mr. Jehl recouped his initial investment and the replication costs, but didn’t make a significant profit.  Although the product had interest the cost was prohibitive to the sales (Jehl, B, personal communication, January 12, 2006). 

Mr. Jehl used a traditional marketing plan.  He discovered that many guitarists were interested in making their own instruments.  Using Mr. Ehat’s business plan and he would have been more successful.  If his product was digital and downloading by buyers rather than a CD and shipped USPS, he could have had the same sales volume but ten times the profits.  If he had a web store and charged only a dollar he might even become the newest wave or even the next Colonel. 

 

 

References

 

Ehat, Evan (2008, June 24) E² Interactive PHP Scipts. E² Interactive.  Retrieved on July 25, 2008 from http://www.e2interactive.com/php-scripts/

Find a Grave (January 1, 2001). Harland “Colonel” Sanders. Find a Grave. Retrieved on July 26, 2008, from http://www.findagrave.com/cgi-bin/fg.cgi?page=gr&GRid=926           

JPG Magazine (2008, June 12). Evan Ehat. JPG Magazine. Retrieved on July 26, 2008 from http://www.jpgmag.com/people/e2interactive

Purdue University Online Writing Lab (OWL) (June 19, 2008 at 3:41PM).  APA Formatting and Style Guide. Retrieved July 26, 2008, from http://owl.english.purdue.edu/owl/resource/560/01/

Tiernan, Bernadette (2001.) e-Tailing. Chicago, IL : Dearborn Financial Publishing, Inc.

Wikipedia (2008, July 23). Harland Sanders. Wikipedia, The Free Encyclopedia. Retrieved on July 26, 2008 from http://en.wikipedia.org/wiki/Colonel_Sanders

 

Inaccurate as it may be, it is polictically correct to look down on the bankrupt.  Most of the bankrupt have gone through unforseen catastrophy and ridiculious personal hardship.  This account isn’t profitable for lending corporations in America, however.  To protray an image of criminal but wealthy helps get there agenda past lawmakers.  In the past five years the cost of bankruptsy has tripled but this year there are some new fees assessed.

For example in a chapter 7 hearing, an attorney represents the state and another attorney represents the debter.  Both make money for their time.  A tax refund, if it is large enough to be collected (usually over a grand) becomes the property of the attorney representing the state.

This year they also get their hands on the stimilus too.  Check your prejudice gauge for a moment.  If you believe the propaganda that all debters are scamming the system, then you might find this to be their own justice.  This is a tax on America’s poorest members of society who have had businesses fail, suffered enormous medical tragedity, lost the the bread winner in their family or became victoms of fraud. 

The stimilus checks should simply be for everyone.  Call me a socialist, call me Robin Hood, call it America’s downside.