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Sharing the Wealth

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DQI Bureau
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So, what exactly did Alan Greenspan tell Congress about the economy during

the first of his two appearances last month? Was he "upbeat," as The

New York Times reported? Or was he only "mildly optimistic," as The

Washington Post said? The front-page tease in The Wall Street Journal had

Greenspan warning that "downside risks predominate." Clear? Like mud.

No wonder they call economics the dismal science.

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Dismal it may be, but we can’t ignore this stuff. People need to understand

economics to decide whether to buy stock, take a new job, or purchase that dream

home. A job that looked golden yesterday might be leaden tomorrow if tech keeps

tanking. Or that new SUV may seem superfluous if your job goes sayonara.

Unfortunately, it’s hard to get clear guidance about the economy–and

especially on what you should do about it. Government economic statistics are

complicated, and there are too many of them. You’d need to master a half-dozen

government Web sites to put together a comprehensive overview. Most leading

business media are too scattershot: One source says one thing, and the next says

the opposite. That’s noise, not insight. Brokerage Web sites can be great, but

most require accounts to get detailed research. As Goldilocks discovered, there’s

little that’s just right.

A couple of lesser-known sites are worth exploring, however. The best place

for regular people to learn enough economics to handle tough times is The Dismal

Scientist, a.k.a. Dismal.com. For some purposes, I also recommend Dr Ed Yardeni’s

Economics Networks, an economics mini-portal named for Deutsche Bank.

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Take That Job? Buy That Stock?

With the economy wavering,

this is a good time to get a better grasp of the daily blur of numbers. It

could keep you out of a bad investment, a house you can’t afford–or an

especially dumb career move. Here’s a look at two Web sites that can

help:
The Dismal



Scientist Dismal.com
Dr ED’s

Economics Network Yardeni.com
Comprehensive Both analyze daily economic and business

news. And they’re both good, but Dismal is better. Since Dismal parent

Economy.com sells most of its research to state and local governments, it’s

better on regional economics, housing, and venture capital. Dr Ed’s is

great on the stock and bond markets

Click

Click

Easy to Understand Dismal is easier to follow and is better

about cutting to the chase. The writing at Dr Ed’s is uneven. It’s

fine that much of it is written for those who understand the jargon. But

too much of Dr Ed’s prose takes forever to get to the point.

Click

Miss

Helps You Make Decisions Give Dr Ed’s this: The Web site makes recommendations–and for free. This final element of analysis is often missing at Dismal.com. They’ll say how fast the economy or corporate profits will gorw, but won’t make suggestions on what you should do about it. Miss Click

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First, Dismal. The site covers 65 different government economics reports from

the perspective of real economists, rather than journalists. Dismal’s parent,

Economy.com, is a consulting firm that sells research to corporations and state

governments. Their depth of data and expertise pays off on this free site, where

you can count on seeing smart takes on the government data announcement du jour

and two or so fresh interpretations of hot issues daily. Comparing Dismal.com to

the analysis pouring out of most crummy stock sites is like comparing Chateau

Mouton Rothschild to Ripple.

The best things about Dismal.com are that it’s quick on the uptake and easy

to understand. Dismal’s team tends to spot trends early and write them fast.

Analysis of regular economics announcements hits the site the same day, often

well



before noon.

After Greenspan’s mid-February testimony, Mark Zandi, Dismal’s chief

economist, wrote that the Fed chief had laid the groundwork for spring and

summer rate cuts. Zandi argued that Greenspan’s real message was that he’ll

do what it takes to keep confidence from eroding–the one thing that could

really turn this slowdown into a recession. Zandi looked farther ahead than the

newspapers and took a much bolder stance than the he-said, she-said of dueling

economists, or, worse, politicians.

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Dismal reads the crystal ball well, too. Its economists are confident enough

to project trend lines for vital metrics going out months into the future–such

as labor shortages in health care and what interest rates will be this summer.

Dismal predicted in mid-February that the federal funds rate will be 5% in July,

down another half-percent, with a 24% chance of falling to 4.75%, based on

signals from the futures market.

What does this have to do with you? Plenty. Lower rates usually mean cheaper

mortgages and more. It’s a fair argument that people would be smart to wait

until midyear to make big purchases–which could retard growth during the first

half of the year. If you’re working for a homebuilder or a car company, that

may mean the bounce back is going to come gradually rather than suddenly.

Dismal has two big weaknesses, though. The first is that it covers the

economy from the top down by watching national and regional statistics. Why does

this hurt? Knowing companies and industries inside out let top business

journalists figure out sooner than economists just what a big deal the Net would

become–long before it showed up in economic stats. Dismal makes a stab at

covering the technology industry as a primary New Economy growth engine, but it

should do better.

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The other weakness is that Dismal generally isn’t explicit about giving

advice. Its excellent-as-far-as-they-go analyses of business inventories or the

Philadelphia Fed’s manufacturing survey don’t directly say which industries

should back off investment for awhile (or which are prone to layoffs or profit

shortfalls). And its analysis of which states have large rainy-day funds doesn’t

tell policymakers or voters much about policy options. Zandi told me Dismal

doesn’t want to give advice without knowing people’s circumstances. But if

the goal is to guide people through the economic wilderness, Dismal should

understand people need help with decisions, not just sharp analysis.

Investors can make up for that weakness, in part, by using Dr Ed Yardeni’s

Economics Network. Dr Ed’s covers a lot–though not all–of the ground that

Dismal does. It’s not written as well, and its staff is far smaller than

Dismal’s. Instead, it relies more than Dismal on links to other Web resources.

Dr Ed’s gives clear guidance about investment decisions. Both Dismal and Dr Ed’s

have analyzed OPEC machinations, but only Yardeni told me to overweight energy

stocks. Most of Dr Ed’s is available to the public for free, and Yardeni is

smart. Yes, he hurt his rep by predicting a recession caused by the Y2K bug. But

he was also an early seer of the New Economy.

My respect for Economy.com is based on more than a quick review. In 1997, a

partner and I tried to start a company to compete with it–but we failed. I’ve

known for years how well they do what they do. My entrepreneurial career is,

alas, a tale of fortune much bleaker than what’s awaiting savvy users of

either Dismal or Dr Ed’s.

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By Timothy J Mullaney

in BusinessWeek. Copyright 2001 by The McGraw-Hill Companies, Inc

Size matters

Now, these mini-dots are proving they’re an online force to be reckoned

with. Indeed, they’re teaching their bigger rivals a thing or two–including

the value of common sense. Unlike some dot-coms with inexperienced executives,

the mini-dots are succeeding by employing the same strategies that

small-business owners have relied on for centuries: They’re sticking to niches

they know well. They scrimp on expenses, forgoing expensive portal deals and

using Net resources, from e-mail to customer-sharing arrangements, to save

money. And they’re banding together on the Web, presenting a bigger face to

the online world.

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So far, it seems to be working–so well that small businesses appear poised

to play a greater role in the growth of e-commerce than anyone expected. Small

companies will see their online sales grow 336% from 2000, to $120 billion by

the end of 2002, predicts ami-Partners, a New York consultant to small and

medium-size businesses. That will outpace overall e-commerce revenue growth of

249%.

Of course, size matters, even in the New Economy. But in some crucial ways,

the Net helps level the playing field for small outfits. For one thing, the cost

savings of selling online and dispensing with store rents or direct-mail costs

makes some businesses viable that otherwise wouldn’t be–say, a home-based

collectibles business.

Moreover, the global nature of the Web goes a long way toward negating one

key disadvantage of the small fry: geographic reach. Now, even a niche seller of

specialty pet supplies can amass enough customers to be viable. Finally, the

easy communications afforded by the Net may make more small businesses,

especially services such as graphic design, attractive to larger businesses

seeking to outsource jobs.

The impact of a mini-dot explosion could have big implications beyond the

Web. By 2004, even the tiniest of these e-merchants–those with fewer than 10

employees and $3 million in annual sales–could account for as much as 10% of

the US gross domestic product, according to e-commerce researcher Keenan Vision.

Maybe so, but big questions remain about how much the Net will boost the

number of small businesses and what impact they’ll truly have on the economy.

For one thing, says William Dunkelberg, chief economist for the National

Federation of Independent Business, it’s possible the Net is simply shifting

existing sales online, not expanding markets enough to support many new

businesses. He adds, it’s likely that the most successful online businesses

will put the other mom-and-pops out of business, lessening the net gain. Most

traditional small businesses fail, and the same may well be true online.

And for all its advantages, the Internet presents a lot of challenges to the

little guys, too. In many parts of the country, pokey Net connections limit how

many visitors these sites can handle. And it can be tough for traditional

businesses coming online to handle both channels at once. Those factors may

explain why, for all the small businesses that have launched online, many more

have not yet moved beyond sites that are nothing more than online brochures.

According to ami-Partners, 22% of small businesses had Web sites in 2000, but

only 8% were engaging in e-commerce.

Still, none of these challenges has stopped a growing number of small

businesses from embracing the Web as a new sales channel and productivity tool.

Many of the online newbies are longtime Main Street merchants or

industrial-goods manufacturers. There’s also a raft of service providers–computer

programmers, graphic designers, lawyers, and such–who have left Corporate

America to hang a shingle on the Internet.

The Web is spawning new breeds of small companies, too. They include tens of

thousands of people who never ran a business before but now make a living

selling collectible ornaments, antique toys, and other odds and ends on sites

such as eBay. About 13,000 stores have sprouted on the Yahoo! Stores section

alone since June, 1998.

What these disparate businesses have discovered is that the Net is less a

magic carpet to a newfound land of riches than a tool to turbocharge an already

sound business model. "The Internet is what the telephone was when it was

invented–a way to further our reach," says Wendy Haig, founder of

Washington (DC)-based Global Strategy, which counsels troubled dot-coms.

"With its vast reach, the Internet will enhance any small business that

uses it properly."

How so? First, they’re using the Net’s access to a global customer base

to zero in on defensible niches, instead of offering all things to all Web

surfers. Pets.com, for instance, went bust in December partly because it tried

to sell all kinds of pet supplies–even huge bags of inexpensive dog food with

high shipping costs and margins under 10%. By contrast, Massachusetts based

Waggin’ Tails sells scarce items such as Provi-Tabs dog vitamins and Hi-Tor

prescription cat food. That allows the Web store to charge high enough prices to

turn a 30% profit margin on well under $5 million in annual sales.

In some cases, the Web’s global reach has allowed entrepreneurs to offer

entirely new types of narrowly focused services. Patti Glick, a San Francisco

nurse trained in podiatry, makes a living speaking at companies on foot health

and safety. Before, she had to do a lot of personal networking, such as mingling

at Toastmasters meetings. Now, by participating in various online podiatric

sites and women’s portals, Glick has drawn corporate customers intrigued by

her screen name, "footnurse." She expects to earn $30,000 this year

working part-time hours that allow her to spend time with her 10-year-old twins.

Small businesses also are using the Net to save big bucks–enough, in many

cases, to make a pipe dream a going business. Selling Beanie Babies and other

collectibles online out of a bedroom in his Oklahoma home, Perry Calton is

grossing annual sales in the low six figures.

Besides saving money, the Net also provides mini-dots a wealth of new

marketing channels. E-mail and discussion newsgroups can be far less expensive

and more effective than direct mail and print or TV advertising. Carrie Hardy,

founder of Colorado based scrapbook-supply site Scrappin’ Happy, sends

newsletters to 1,100 past customers and posts messages on scrapbooking

newsgroups. Instead of buying $80, three-line ads in trade magazines that never

drove any traffic anyway, she spends nothing and gets a far better response:

After mailing her February newsletter, sales doubled the next day.

No online marketing channel has proved more effective than online auctions,

pioneered by eBay in 1996. Besides spurring the formation of thousands of new

small businesses online, they have prompted existing businesses to branch out.

Some wholesalers are using eBay to go retail:

Andrew Waites took his Mississippi retail overstock business, Inventory

Procurement Services, directly to consumers over eBay–leading to what he hopes

will be a twofold-plus jump in sales this year, to $7 million, and a gross

profit margin online of 50%, 10 times the original business.

Finally, the Net has allowed far-flung small businesses to gang up and pool

their resources against their bigger and louder competition in ways they can’t

do in the physical world. The American Booksellers Association, which promotes

independent bookstores, runs a program called BookSense.com that allows members

to offer amenities only big chains could offer before, such as gift certificates

good at any member store. Moreover, their online customers can order any book in

print from their site, even if they don’t stock it themselves. Kerry Slattery,

owner of Skylight Books in Los Angeles, partly credits the program for a

higher-than-expected 15% rise in her store’s sales in 2000, to $1 million.

Daunting prospect

All that’s not to say the Web can turn any small business into a raging

success. Most entrepreneurs are running into obstacles on the Web that are hard

to overcome with limited staff and resources. One of the toughest jobs:

providing superior customer service. After all, to make up for what they may

lack in product breadth–not to mention customers’ ability to click instantly

to another site–they have to offer much more personal service.

Another challenge is Internet technology itself. Fast broadband connections

are still largely unavailable, especially in rural areas, leaving many small

businesses stuck with snail-like modem connections. And many worry that they

could lose a lot of customers if their connection goes down. Says Deepinder

Sahni, vice-president at researcher ami-Partners: "What we are hearing is

that they are hesitant to put their crown jewels–their companies–on the

Internet."

For many small businesses, the prospect of competing with the online

behemoths is daunting–for good reason. It may be only a matter of time before

the big guys notice how well they’re doing and jump onto their turf. So they

must stay vigilant, even paranoid, about differentiating their offerings.

That, however, is not the main worry of most small businesses that have moved

online. Their problem: too much business. When Jordan Dossett posted her

graphic-design portfolio a year ago on eLance.com, a Web marketplace for

freelance workers, she was buried under an avalanche of work offers from

companies as far away as Russia. So she quit her job as art director for a law

firm and opened The Design Studio in her Washington (DC) home. After hiring

three employees, she expects to rake in $350,000 in sales–and a tidy gross

profit of $250,000. "I had no idea the amount of demand out there,"

she says. "Suddenly, I’m slammed." Now, that’s a problem a lot of

dead dot-coms would love to have had.

By Arlene Weintraub in BusinessWeek. Copyright 2001 by The McGraw-Hill Companies, Inc

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