The Prospecting Professor

Big Money in Motion!!!

This past April, the state of California had a record month for income tax receipts. The reason? Google's top executives and directors sold a bunch of Google's stock last year...and paid their capital gains tax last month.

California took in $11.3 billion in tax receipts in April of 2006...$4.3 billion more than in the same month in 2005. It is believed that much of this gain came from the capital gains tax on stock sales by Google employees. Last year, the search engine's 14 top executives and directors sold $4.4 billion worth of stock, including $2.6 billion in stock sold by founders Sergey Brin and Larry Page. Assuming the insiders acquired the stock at very low cost, and that they all are in the state's top bracket of 10.3%, this group would owe the state a cool $450 million in capital gains tax.

This does not include the legions of middle-manager Google employees, who do not have to publicly disclose their stock sales. Presumably, many of these folks were sellers too...pushing the state's take to well above the $450 million amount.

California says: We (heart) Sergey and Larry!

The Sweet Success Story of Fairytale Brownies

Yesterday, April 12, 2006, the Small Business Administration announced the 116 different award-winners for National Small Business Week 2006.

Among the winners were Eileen Spitalny and David Kravetz, of Fairytale Brownies in Chandler, Arizona.

Theirs is an archetypal, entrepreneurial story. They met on the kindergarten playground in Phoenix and stayed friends throughout grade school and high school. In 1992, without baking, manufacturing, or direct-marketing experience, they began Fairytale Brownies. Moonlighting out of a friend's catering kitchen during the first year, they sold mostly through catalogs...using David's mother's 49-year-old secret family brownie recipe.. In 1993, they moved into their own bakery and went online with www.brownies.com.

They got a big break in the summer of 1994. They got a great write-up in The New York Times...that came as a result of sending out their brownies...with their press releases. (This is a time-tested trick. In getting attention, food works...especially anything sweet, or chocolate!)

Today, David and Eileen oversee a growing direct-mail gourmet brownie business that ships over 2.5 million brownies annually.

The most popular item with their customer base is the Fairytale Dozen ($32), a sampler of one of each flavor in the three-inch square size. Kravetz describes 60% of the customer base as business gift giving, although not just for the holiday season. The typical consumer customer is female, between 35 and 50 years old. Not surprisingly, more than 50% of their business falls between Thanksgiving and the the December holiday season.

They are also SBA Small Business Persons of the Year. Kudos and congratulations to Eileen and David!

Connecting the dots...

One of the target audiences of The Prospecting Professor are financial salespersons. Although we certainly welcome readers of all stripes, many of our articles address the sales and marketing concerns that financial salespeople face, both strategically and tactically.

Over the past few days, I've highlighted businesses that will participate in the upcoming National Small Business Week Celebration 2006, in Washington D.C. On April 12-13, more than 100 business owners from around the country will gather in recognition of their outstanding achievements.

For financial advisors who read yesterday's entry about Sittercity.com or Friday's story regarding Shatto Milk Company, your response may have been, "Nice little stories...but so what? How does this help me with my business?"

Good question. Here's how.

If one of these nominees were in my neck of the woods, I would find a way to contact them. A congratulatory phone call might be a great place to start..."Congratulations! I've been reading about the SBA award that you've received. Great stuff! Kudos to you...and best of luck in Washington D.C. By the way, I specialize in working with small business owners like yourself, and when you return from your trip I would love to get to know the secrets of your success over a cup of coffee. Can I call you in a two weeks to set something up?"

Follow up on this conversation with a handwritten letter, that reinforces your congratulatory tone. Or if you wanted to really get on this person's good side, you might send a cute and funny gift. How about a disposable camera...for pictures on their Washington D.C. trip?

In general, small business owners can be very good prospects for all sorts of professional and business services. Moreover, business owners (small, medium and large) have much of the wealth in this country.

Every few years the Federal Reserve Board sponsors the Survey of Consumer Finances. In the most recent survey, here is what they found:

• Households with business ownership hold 46% of the economy's aggregate wealth, while comprising just 13-14% of the population.
• A household owning any business was seven times more likely to be classified as high-wealth, i.e. more than $1 million net worth...than a household with no business interest. Among business owners surveyed, 17% had a net worth of $1 million or more, compared with 2.4% for the general population.

I hope this clears things up.

Sittercity.com: Small Business Success Story

On the evening of April 12, at a reception in the U.S. State Department, the Small Business Administration will honor small business owners as part of the National Small Business Week Celebration. As part of this celebration, The Prospecting Professor will highlight and profile some of the nominees.

Genevieve Thiers of Sittercity.com will represent Region V, which covers Illinois, Indiana, Michigan, Minnesota, Ohio, and Wisconsin.

In 2001, Genevieve Thiers was 24 years old, and a fresh graduate from Boston College. She had an idea...to help families find baby sitters by creating an electronic database using profiles and postings to match parents and sitters. The Brookline, MA native, the oldest of seven children who paid off much of her BC tuition through her babysitter gigs, had a sense that the idea of an online babysitter service would work.

At the outset, she spoke to a number of potential investors about corporate backing. The support wasn't there, all of the 'angels' turned out to be pessimistic naysayers who said that Genevieve's idea was doomed to failure. As it turned out, all of the folks she talked to were men who didn't get it. Genevieve remembers thinking, "Get your wife in here, she'll understand what I'm saying."

Consequently, she took matters into her own hands, stuffed a bunch of fliers into her backpack, and went to every college campus in the Boston area (which is a lot)...and papered all of the dorms. Within one month, Thiers had received over 600 responses from students looking to register on her site, as well as 30 families who were interested in finding a sitter.

Five years later, business is booming. Sittercity.com is in 20 core U.S. markets, has ten employees, $1.1 million in revenues and 150,000 babysitters. Currently, the company offers parents a subscription that costs $39.99 for the first month of use. Also, Sittercity.com has attempted to differentiate themselves from free sites (e.g. Craigslist) by emphasizing quality assurance. All sitters are at least 17 years old and come with references. Many are first-aid and CPR-certified.

Genevieve Thiers was a music major in college and never studied business. Today, she is based in Chicago, after receiving a master's degree in music from Northwestern University...and is also an aspiring part-time opera singer, www.genevievethiers.com.

Remembering the "No's" and snubs early in her career, she has turned away recent overtures from venture capital firms. However, Ms. Thiers is not against being purchased by a larger company in the longer term.

Good luck, Genevieve!

Shatto Milk Co.: Small Business Success Story

The Small Business Administration has declared the week of April 9th, Small Business Week. On April 12-13, the SBA will host a two-day conference in Washington D.C., which will honor more than 100 small businesses from around the country. The common theme for many of these businesses will be that they have recovered from near-disaster.

Over the next few weeks, The Prospecting Professor would like to highlight some of these small business success stories.

Shatto Milk Co. has been a family-owned farm for more than 100 years. They are located in Osborn, Missouri, which is about 45 miles north of Kansas City. It is owned by Leroy and Barbara Shatto.

For the past 30 years, Leroy Shatto has operated the farm by milking his herd of 80 cows twice-a-day, and then, like most dairy farmers, selling the milk to a co-op. Over the past two decades or so, many local dairy farmers have gone out of business due to the low prices that were being paid out by the dairy cooperatives for bulk milk. Indeed, by 2000 the Shatto farm was no longer profitable, and Barbara and Leroy were considering shutting it down.

Searching for alternatives to closure, Leroy received two grants from the U.S. Department of Agriculture that helped pay for research, a feasibility study, and a business plan. He also sought out the Service Corps of Retired Executives who provided other marketing data.

Through this research, Shatto learned that consumers wanted farm-fresh milk...and wanted to know where it came from. With loans from the SBA, and a new business plan...Shatto determined that he could become profitable again by opening a plant to process the milk himself, as well as a retail presence...store and website, www.shattomilkcompany.com.

Shatto now sells his no growth-hormone milk directly to 56 groceries in the Kansas City area and northern Missouri. Better yet, he uses recyclable bottles instead of plastic containers as a further product differentiator.

Shatto Milk sells the full range of dairy products: whole white milk, chococate-, root beer-, and strawberry-flavored milk, 2% milk, half-and-half, cream, butter, and eggnog (during the holidays.)

In the words of Leroy Shatto, "For 30 years I walked across the road every morning at 4:30 and wondered why I was doing this. For 30 years we didn't know where the milk went after we sold it, so no one ever told me my milk tasted good. Now they tell me every day."

It's always nice to be appreciated...whether you are a dairy farmer, cow, or human.

Happy Birthday, Steve Jobs!

Today is the birthday of Steve Jobs, CEO of Apple Computer, and iconic Silicon Valley billionaire.

Steve was born in 1955. His biological parents were unmarried, and one week after his birth, Steve was put up for adoption. He was raised by Paul and Clara Jobs in Mountain View California...during a time when the Santa Clara Valley was mostly known for the sweet smell of its apricot orchards. Jobs went to Homestead High School in Cupertino, CA...and attended after-school lectures at the Hewlett-Packard Co. in Palo Alto. Soon, he was hired at HP as a summer employee, where he met and worked with Stephen Wozniak. After graduating from high school, Jobs enrolled at Reed College in Portland, OR...yet dropped out after a semester.

In 1974, Jobs returned to California, and began attending meetings of the "Homebrew Computer Club" with Steve Wozniak. He took a job as a technician at Atari, a manufacturer of "Pong" and other popular video games. During this time, it was discovered that a slightly modified toy whistle included in every box of Cap'n Crunch breakfast cereal was able to reproduce the supervision tone used by AT&T long distance telephone system. Jobs and Wozniak went into business briefly in 1974 building "blue boxes" which allowed free long distance calls.

In 1976, Jobs and Wozniak founded Apple Computer to manufacture a home computer Wozniak had originally developed for his own use. Over the next several decades, the fortunes of Jobs and Apple went from boom...to bust...to boom. With the development of the Macintosh computer, the iMac, and the iPod...Jobs fulfilled an early goal, "I want to make a dent in the universe."

In 1986, he formed the computer animation company, Pixar...which was recently acquired by the Walt Disney Company for $7.4 billion in stock, a deal expected to close this summer. The transaction makes Jobs Disney's largest individual shareholder and will give him a seat on the company's board of directors.

In a 2005 commencement address at Stanford, Jobs said:

"Your time is limited, so don't waste it living someone else's life. Don't be trapped by dogma...which is living with the results of other people's thinking. Don't let the noise of others' opinions drown out your inner voice. And most important, have the courage to follow your heart and intuition."

John Doerr: The Last Laugh

Kleiner Perkins Caufield & Byers anchors the West Coast venture capital industry, and John Doerr is their most visible principal. Over the years, John Doerr has done some prospecting of his own...hitting it big with early investments in Amazon, Netscape, Compaq, and Sun Microsystems...and coming up dry with Homestore.com, Drugstore.com, and Segway.

In 1999, Doerr, on behalf of his firm, invested $12.5 million in Google. Recently, Bill Burnham, who authors a weblog on software technology and investing, has done some digging around the Edgar database, to determine how much the two main venture capital firms, Kleiner Perkins and Sequoia, have reaped from their Google investment.

Caution: if you are easily susceptible to Investment Envy, please avert your eyes.

• Each firm invested $12.5 million in 1999, and received $4.3 billion...a 34,300% return.
• John Doerr personally received $422 million worth of Google shares, with another $90 million not yet distributed.
• Sequoia's Mike Moritz received about $200 million.

With the Dot.com bust, John Doerr was mocked and ridiculed for some of his quotes regarding the Internet, for example...calling the Internet "the Great American Boom" and "under-hyped." Who's laughing now?

Business Incubators

The National Business Incubation Association is an organization that supports entrepreneurs.The association is composed primarily of incubator developers and managers, but technology commercialization specialists, educators and business assistance professionals are also well represented. Its mission is to provide training and a clearinghouse for information on incubator management and development issues and on tools for assisting start-up and fledgling firms.

The benefits of the incubators, to the entrepreneur, are the typically lower costs within the Business Incubation parks. Some expenses are shared and others are covered by project backers. This can be especially helpful for technology companies...which often need specialized facilities which can be cost-prohibitive or early-stage, stand-alone companies.

Another significant benefit of the Incubators can be the proximity to the other tenants...entrepreneurs and scientists, as well as to venture capitalists and other service providers.

The member directory can be found on the National Business Incubator Website, www.nbia.org. Business incubators exist in every state, with 1-2 exceptions (e.g. Wyoming). Additionally, many states have statewide business incubation associations. Links to these associations can be found on the NBIA website too.

From a financial advice standpoint, entrepreneurs have specialized needs...and are not ideal clients for all advisors. In some cases, the need for start-up funds is so great...and the lead-time is so long...that it is foolish for an advisor to concentrate solely on entrepreneurs.

On the other hand, there is a growing population of entrepreneurs who are on their second, or third career. Maybe they have worked in a cube for the past 20 years, and  have accumulated a significant retirement nest egg...and have always wanted to start something of their own. Either way, the NBIA is a good place to begin to learn about some of the issues that start-ups, and entrepreneurs, encounter.

"The lofty oak from a small acorn grows"...Lewis Duncombe