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    Published on: April 30, 2012

    by Kevin Coupe

    There’s more than one way to fund a start-up. Especially in these times of instant communication and social networking.

    The New York Times has a story about a new product called the Pebble - a watch that synchs with iPhones and Android phones - which despite the fact that it seemed both relevant and unique, was having trouble generating funds from venture capitalists.

    So the creators turned to a website called, described as a “site where ordinary people back creative projects.” Pebble’s creators did not even have to give up any equity in the company; the Times writes that “patrons who back Kickstarter campaigns are often rewarded with insider access to the projects they finance, and in most cases, a tangible reward for their money. In Pebble’s case, the reward is an actual watch, making it a more appealing project than, say, a movie, where the payoff is a little harder to show off to friends.”

    In two hours, Kickstarter generated $100,000 for Pebble, which was the creators’ goal. In about 24 hours, they were up to more than $1 million in funding. Now, still two weeks away from the end of the fundraising period, they’ve raised more than $7 million.

    This isn’t an isolated case.

    “To date, it has raised more than $200 million for 20,000 projects, or about 44 percent of those that sought financing on the site,” the Times writes. “Only projects that meet their stated financing goals receive money ... Much as the introduction of cheap Web services lowered the barrier to entry for people seeking to create a start-up, and as offshore manufacturing gave entrepreneurs a chance to make products without having to build a factory, Kickstarter offers budding entrepreneurs a way to float ideas and see if there’s a market for them before they trade ownership of their company for money from venture capitalists.”

    Beyond the obvious - how great it is that a internet provides a mechanism for people with great ideas to get funding from just average folks who would like to provide seed money in small doses - this story reinforces for me a notion that I’ve had for a long time.

    It has been my conviction that the biggest threats/challenges to most businesses come from entities that either don’t exist yet or are not quite on our radar screens. That makes such threats hard to plan for, and requires businesses to be nimble and prescient in ways that generally they are not. (It is why I spend so much time on MNB doing pieces that none of my nominal competitors would even consider, trying to look at sometimes unorthodox stories from odd angles ... I hope that by doing so, I’ll illuminate the landscape in a way that may spark an idea that might serve people well in coming battles.) Sites like Kickstarter make it possible for unexpected competitors to get some traction, line up some funding, and maybe start something remarkable.

    Which is why we all have to keep our Eyes Open, and as best we can, look to be pretty remarkable ourselves.
    KC's View:

    Published on: April 30, 2012

    The products may be bagels, but the business strategy is modeled on an internet stet-up.

    The Washington Post had an interesting piece over the weekend about a new bagel manufacturer in the San Francisco area that is endeavoring to bring New York-quality bagels to the City by the Bay. What makes Schmendricks different is that the four founders are “trying to build Schmendricks more like an Internet start-up than a food company, keeping upfront costs to a minimum, reaching customers through services like Twitter and collecting data on consumer preferences. They don’t have a physical store and are subleasing kitchen space at Asana, the start-up led by Facebook co-founder Dustin Moskovitz. Bagels are sold through preordered pickups, deliveries and at weekend pop-ups, where the team sets up outside a local cafe or shop.”

    According to the story, “To promote weekend pop-ups and keep in touch with customers, Schmendricks uses Twitter, Facebook and its e-mail list. For arranging pickups, it uses software from start-up Good Eggs. For accepting credit cards on site, the company has experimented with technology from Square and eBay’s PayPal unit. Those products let them track preferences of specific customers.”

    “Even at a very early stage, we’re able to drive a lot of foot traffic and customer traffic to wherever we’re popping up,” says Dan Scholnick, an internet startup veteran and one of the founders of Schmendricks.
    KC's View:
    Again, the message is that competition can come from anywhere, and often it is not playing by the traditional rules and legacies that many other companies play by. They push the business forward, using informational and guerrilla tactics to establish loyalties and consumer investment.

    And the big thing is that while in the past few years it has been clear that there is traditional time and internet time (which moves a lot faster), these days everybody is moving at internet time. To move slower may be to invite disaster.

    Published on: April 30, 2012

    In a piece entitled “Why The Amazon Naysayers Should Be Scared,” Bloomberg Business Week writes that last week’s “blowout earning report” by the e-tailer “was yet another rousing movement in the entrepreneurial symphony being conducted in Seattle by Chief Executive Officer Jeffrey Bezos.

    “Everything seems to be going right just now: His company is attracting new customers and third-party sellers, getting existing customers to spend more, and increasing profitability on new ventures such as Amazon Web Services and the Kindle. In the context of those improved margins, its expensive investment in its own operations, normally so disconcerting to Wall Street, now looks much less foreboding. Amazon added almost 10,000 employees in the past three months and now employs 65,600 people, up from 37,900 a year ago. It is building at least 13 new fulfillment centers in the U.S. this year, which will allow it to accelerate delivery and perhaps even expand its nascent grocery-delivery business beyond Seattle.”

    Furthermore, the story notes, just last week “Amazon and Texas officials announced the company will begin collecting sales tax in Texas by this July and that Amazon will invest at least $200 million in new distribution centers in the state. It’s one more example (California was another) where Amazon essentially blinked in its standoff with a state that wanted it to begin collecting sales tax. Yet Amazon still wins, because it builds the new distribution centers it needs to expand its operations. (CEO Jeff) Bezos has perfected the art of architecting the win-win situation.”
    KC's View:
    Maybe it is me, but I often get the sense that Jeff Bezos is playing chess while everybody else is playing checkers.

    At the risk of being overtly self-promotional - though relevantly so - I’d like to invite MNB readers who are attending the Food Marketing Institute (FMI) show in Dallas this week to attend a session I’m doing that will address some of this growth”

    From Amazon to Zipcar: Innovations from the E-Revolution.
    Twenty-first century change can quickly challenge your thinking and threaten your way of doing business - a new competitor, a new business concept, a new distribution model, or some other out-of-the-box idea that nobody saw coming. Tom Furphy, formerly of Wegmans and (where he developed the CPG business), and I will engage in a far-reaching and provocative dialogue that will include the audience and focus on where traditional retailing is heading, what can be learned from e-commerce successes, how to compete in the new environment, and how to understand the new consumer.

    I hope we’ll see you there on Wednesday, May 2, at 10 am, in C Ballroom 2 in the Dallas Convention Center.

    Published on: April 30, 2012

    1. The New York Times reports that all of Walmart’s recent efforts at polishing its reputation and nurturing better relations with the communities in which it does business - or, more importantly, wants to do business - may be for naught, as the reverberations from the Mexico bribery scandal may be catching up with it.

    According to the story, “In Los Angeles, a Wal-Mart building permit is getting a once over. In New York, the City Council is investigating a possible land deal with the retailer’s developer in Brooklyn. A state senator in California is pushing for a formal audit of a proposed Wal-Mart in San Diego. And in Boston and its suburbs, residents are pressuring politicians to disclose whether they have received contributions from the company.

    “All of it in the past week.”

    And while Walmart has pledged to continue its expansion efforts regardless of the Mexico controversy, the story notes that “the scandal in Mexico has provided opponents with new ammunition,” and it may be hard - at least for the moment - for Walmart to fight back effectively.

    Last weekend, the Times provided an inside look at Walmart’s Mexico division, suggesting that its fast growth over the past decade was fueled by bribes, and that top management was more concerned with details not being revealed and investigations not being allowed to move forward than it was with stopping the systematic corruption and adhering to US law that forbids American companies from bribing foreign officials.

    2. Reuters reports that Walmart is getting a little pressure from within the organization for a change in top management as a result of the bribery scandal that came to light a little more than a week ago.

    According to the story, Venanzi Luna, a deli manager at a Walmart store in Pico Rivera, California, has launched an online petition calling for the resignations of company chairman S. Robson Walton and CEO Mike Duke, as well as for “"a thorough and independent investigation by a highly-respected external organization."

    Luna, a seven-year Walmart employee who comes from Mexico, tells Reuters, "Nobody should get away with bribery, and they should be held accountable for that.”

    Luna’s goal is to get 10,000 signatures on the petition; as of this writing, she has more than 5,400.

    3. In an analysis of Walmart’s new “Buy Online, Pay In Cash” initiative, Forbes suggests that the concept isn’t just good for the 1-24 percent of the US population that does not have a relationship with a bank, but also for teenagers who want to make purchases from digital devices but do not qualify for credit cards: “Paying in cash is their only option and Walmart’s solution is perfect for this demographic.”

    Add these two groups together, the piece suggests, and Walmart is positioning itself as a relevant mobile solution for an audience that Amazon to this point has been ignoring.

    “Paying for something in cash goes hand in hand with this hand to mouth population,” Forbes writes.

    In case you missed the story last Friday, here’s how the new Walmart initiative works:

    “Customers go to from any Internet-connected device to select an item and place an order. During checkout, the customer selects the ‘cash’ option and their shipping preference. Customer immediately receives an order number on the order confirmation page and an email receipt with their order number. The item is reserved in the system. The customer has 48-hours to take the printed order form to any cash register of any Walmart store or Neighborhood Market. Once cash payment is completed in the store and received, shipping then occurs via Site to Store or to their preferred address.”
    KC's View:
    Let’s see....I’ll take these in reverse order.

    3. I’m not entirely convinced about the Walmart pay-by-cash concept. Sure, it appeals to the unbanked, but the process isn’t exactly convenient. Still, I think it is a smart idea to test it and see if it can attack Amazon on the flank that the e-tailing pioneer has not been protecting. (If it works, expect to see a lot of other retailers looking to develop their own versions...)

    2. What’s the over/under on how long Venanzi Luna’s Walmart career lasts?

    That said, her petition throws a spotlight on a cultural problem that the bribery scandal may be creating for Walmart ... a sense that this American behemoth comes into countries and just throws money around to get what it wants. Not great for Walmart, and not all that hot for America, either.

    1. As for the bribery scandal creating a domino effect that could plague Walmart both in the US and around the world, this could be the sad legacy of the Lee Scott - Mike Duke - Eduardo Castro-Wright era, depending on how it all plays out. It may be that their emphasis on short-term goals could create a long-term set of problems with which their successors will have to grapple.

    Published on: April 30, 2012

    USA Today reports on how some consumers are upset with Kellogg’s Kashi cereal brand - and are expressing their discontent via social media - after a Rhode Island retailer called The Green Grocer stopped selling the brand and posted a note on the shelf saying that “he wouldn't sell the cereal because he found out the brand used genetically engineered, non-organic ingredients,” something that he felt the word “natural” on the box misrepresented.

    According to the story, “Photos of the note began popping up on Facebook pages and food blogs as some consumers claimed Kellogg's was misrepresenting its cereal ... some consumers say they felt duped into believing the cereal was organic and free from genetically modified ingredients because of Kellogg's use of the word on packaging and its website. They've taken to the digital streets with their anger, posting on Kashi's own Facebook page, as well as the pages of several organic cereal makers and organic stores. News media have begun picking up the story.”

    Kashi has done nothing wrong, says David Desouza, Kashi general manager, tells the paper that the company has done nothing wrong: “The FDA has chosen not to regulate the term ‘natural,’” he says. “The company defines natural as ‘food that's minimally processed, made with no artificial colors, flavors, preservatives or sweeteners’.”
    KC's View:
    In 2012, I think we have to stop thinking in terms of living up to the letter of regulations. Just doing nothing legally wrong may not be good enough anymore ... if an action or inaction is perceived as being less than transparent, or just the slightest bit dishonest or exploitive, then people are going to react via mechanism that are going to put companies on the defensive.

    Published on: April 30, 2012

    The New York Times seems to have big business in its sights these days.

    Last Sunday, it was a piece detailing how Walmart appears to have bribed its way to success in Mexico, a story that continues to have enormous implications as questions are raised about its global business ethics, accounting practices, and the viability of current management to ride out the storm.

    Yesterday,, the Times trained its investigative eyes on Apple Inc., detailing how the company has set up satellite offices - sometimes with no more than a mailbox or almost empty office - in places including Reno, Ireland, Luxembourg, the Netherlands and the British Virgin Islands - to help it reduce its tax bill around the world.

    Here’s how the Times frames the story:

    “Apple serves as a window on how technology giants have taken advantage of tax codes written for an industrial age and ill suited to today’s digital economy. Some profits at companies like Apple, Google, Amazon, Hewlett-Packard and Microsoft derive not from physical goods but from royalties on intellectual property, like the patents on software that makes devices work. Other times, the products themselves are digital, like downloaded songs. It is much easier for businesses with royalties and digital products to move profits to low-tax countries than it is, say, for grocery stores or automakers. A downloaded application, unlike a car, can be sold from anywhere.

    “The growing digital economy presents a conundrum for lawmakers overseeing corporate taxation: although technology is now one of the nation’s largest and most valued industries, many tech companies are among the least taxed, according to government and corporate data. Over the last two years, the 71 technology companies in the Standard & Poor’s 500-stock index — including Apple, Google, Yahoo and Dell — reported paying worldwide cash taxes at a rate that, on average, was a third less than other S.& P. companies’. (Cash taxes may include payments for multiple years.)

    “Even among tech companies, Apple’s rates are low. And while the company has remade industries, ignited economic growth and delighted customers, it has also devised corporate strategies that take advantage of gaps in the tax code, according to former executives who helped create those strategies.”

    The story goes on:

    “Apple’s domestic tax bill has piqued particular curiosity among corporate tax experts because although the company is based in the United States, its profits — on paper, at least — are largely foreign. While Apple contracts out much of the manufacturing and assembly of its products to other companies overseas, the majority of Apple’s executives, product designers, marketers, employees, research and development, and retail stores are in the United States. Tax experts say it is therefore reasonable to expect that most of Apple’s profits would be American as well. The nation’s tax code is based on the concept that a company ‘earns’ income where value is created, rather than where products are sold.

    “However, Apple’s accountants have found legal ways to allocate about 70 percent of its profits overseas, where tax rates are often much lower, according to corporate filings.”

    Apple responded to the Times by saying it “has conducted all of its business with the highest of ethical standards, complying with applicable laws and accounting rules,” and noting that “in the first half of fiscal year 2012, our US operations have generated almost $5 billion in federal and state income taxes, including income taxes withheld on employee stock gains, making us among the top payers of U.S. income tax.”
    KC's View:
    Fascinating piece.

    The entire story can be read here.

    This may not be the same as bribing foreign officials in order to grease the wheels of global expansion, but at a time when debates about tax fairness are very much front and center, not to mention a time when Apple has been dealing with accusations that it exploits foreign workers, stories like this can have an impact.

    Sure, most businesses do what they can to avoid paying taxes. In that sense, Apple is no different. But since Apple’s entire business is built on an image of being different, the issue could be problematic.

    In the broadest sense, the story does illustrate the problem with the tax code - clearly something has to be done to streamline and simplify the system.

    But since that seems unlikely to happen in a time of political tumult and gridlock - not to mention a time when one of the Presidential candidates has money in the Cayman Islands and a Swiss bank account - I think I’m going to have to start looking into opening up MNB satellite offices. Ireland sounds good, but the British Virgin Islands sound even better...

    Published on: April 30, 2012

    National Public Radio takes note of an interesting statistic - that despite the fact that obesity continues to be an enormous problem in the US, high cholesterol rates are on the decline, to 13.4 percent of US adults from 18.3 percent a decade ago.

    That’s actually five points lower than the US government’s stated goal for 2010.

    The reason? One major factor is the use of cholesterol-lowering statin drugs such as Lipitor and Zocor - 264 million prescriptions for drugs like these were handed out last year alone. But lower smoking rates in the US also are said to be having an impact on cholesterol figures.

    The public health impact of this shift is said to be enormous, since high cholesterol is said to double the chances of a heart attack.
    KC's View:

    Published on: April 30, 2012

    ...with brief, occasional, italicized and sometimes gratuitous commentary...

    CNN reports that “after a year of testing, Costco is rolling out a full-service mortgage lending program on its website in partnership with First Choice Bank, a New Jersey-based community bank, and 10 other lenders.

    “Costco's partners have issued more than 10,000 mortgages to members under the program. But Lauren Kutschka, Costco's manager of financial services, expects that number to swell as the warehouse retailer markets the service more aggressively to millions of members in its stores and in its weekly publication ‘Connection’.”

    Costco has the whole circle-of-life going for it these days. Insurance, coffins, wedding thing you know, they’ll be selling at-home midwifery kits... reports on a new study from the Centers for Disease Control and Prevention (CDC) saying that almost one-third of US workers get less than six hours sleep per night - much less than the seven to nine hours recommended by most doctors.

    “Middle-aged workers—that is those between the ages of 30 and 64 years—were more likely to report a lack of sleep than their younger and older counterparts,” according to the story, and not surprisingly night shift workers - including health care employees and people in the transportation business, like truck drivers - also make up a major percentage of those getting too little sleep.

    This lack of sleep may be implicated in another set of statistics - “in 2010,” the story says, “a total of 4,547 workers died from occupational injuries, and another 39,000 died from work-related illnesses.”

    No question that I fall into this demographic...thank goodness that, unlike health care workers and truck drivers, the only thing I’m likely to kill because of lack of sleep is a good idea or the English language. Or maybe, if I screw up really badly, my career...

    • Giant Eagle is reported to have opened a new environmentally friendly, LEED-certified, 83,000 square foot store in Cleveland, Ohio, that includes a solar roof.

    • To help customers more easily identify gluten free products as they shop the aisles of the grocery store, Giant Food Stores and Martin’s Food Markets have introduced a new gluten free shelf-labeling system. To date, approximately 3,000 Own Brand and national brand products have been identified throughout the perishable and nonperishable departments with more to be added every month.”

    “Demand for gluten free products continues to rise,” said Jeff Beaulieu, vice president, sales and merchandising. “We want to make it easier for our customers to identify these quality products while bringing awareness to our increased assortment, so we are enthusiastic about this gluten free shelf-labeling launch.

    • The Wall Street Journal this morning reports on how Dollar General is trying to “grab a share of the grocery business” with Dollar General Market stores that offer more fresh food in addition to the merchandise mix the stores traditionally have carried. This “new general store” concept - which carries brand names to appeal to more affluent shoppers as well as private brands for financially strapped customers, is said not to be as profitable as the company’s traditional stores, but the “profit gap is narrowing.”

    The strategy, according to the story, is to get people to shop more frequently for fresh foods at Dollar General Markets, and then get them to spend more on the items that carry higher margins. Which is pretty much what Walmart was thinking when it got into the grocery business. It may not be an original thought, but it can be an effective one if the mix is right.
    KC's View:

    Published on: April 30, 2012

    • Maurer’s Foods, parent company of Fresh Madison Market in Madison, Wisconsin, and soon-to-be-opened Fresh City Market there, announced the hiring of Dale Riley as the company’s new COO.

    Riley, among other posts in the food industry, is the former president of Byerly’s, executive vice president/COO at Lund’s/Byerly’s, and COO at Kowalski’s Market.
    KC's View:
    I’ve always liked Dale, and a great guy to hang out with. If Maurer’s wants to grow, he is a perfect person to help the company do so.

    Published on: April 30, 2012

    Got the following email from a reader who wanted to respond to last week’s story that took note of the irony that former Walmart vice chairman/COO Don Soderquist will be speaking on May 16 at a forum being advertised this way:

    Don firmly believes that business ethics are not a luxury, but an essential element in creating high-performance organizations; he also knows that the responsibility for creating an ethical organization belongs to its senior leaders.

    Soderquist, we noted, is the founding executive of The Soderquist Center for Leadership and Ethics.

    But the MNB reader cautioned us:

    For God's sake, don’t buy into the BS coming out of Bentonville.  Don is still on the payroll through his leadership and ethics shop ... Walmart pays The Soderquist Center A LOT of money to put on seminars for their people ... It would be a real contest between Don Soderquist and Mike Duke to see which on could put a better holier than thou speech from religion to ethics.

    It wouldn’t be so hard to stomach that they are out bribing the world in the the name of global expansion if they didn’t act so clean as the driven snow.

    Point taken.

    One MNB user last week noted that in the light of the Walmart bribery scandal, it is interesting to note that a lot of other US retailers, such as HEB and Costco, have not grown as fast in Mexico. Which led another reader to write:

    Maybe some of Walmart's bribes were to slow down approvals, permits etc. for competitors' projects. Wouldn't that be an interesting development...

    At this point, not much would surprise me.

    And, from another MNB user:

    In an effort to avert controversy surrounding the bribery scandal, I would expect to begin seeing the heartwarming commercials from Wal-Mart about how much they do for the community and the environment, and how a female Mexican immigrant came to the US, got her green card, and worked her way up from cashier or warehouse clerk to VP of logistics.  One could probably start seeing these “Wal-Mart is so great for everyone” commercials during the national nightly news coverage.

    Good bet.

    And MNB user Mark Raddant offered:

    You wrote:

    “These emails - and others I have received - represent a level of cynicism about how the system is supposed to work that I find alarming. It seems that perhaps they are willing to accept value systems that are selective, and ethics that are conditional and convenient.

    “Does rule of law mean nothing? Do the idealized virtues of capitalism mean nothing? Have we gotten to the point where graft and corruption are simply accepted as a cost of doing business?”

    The answer is the rule of law and American Exceptionalism and “In God We Trust” are all means of keeping the 99% cowed and as out of the game as possible.  There is no moral responsibility in most companies, only lip service and concern for loss of shareholder value.  Every story about WalMart Mexican malfeasance reports about loss of stock value.  No mention of loss of moral standing. The Corporate defense in all these episodes, from BP to Banking to Bribery is that they are being horribly misunderstood, not a single admission of guilt and complicity.  There is no nobility in most businesses.

    But I said “most”; we have to assume there is always hope, but it grows dimmer by the day.

    On the broader issue of trust, which I also wrote about last week, one MNB user wrote:

    I like to read the responses to your articles. This morning one in particular struck me and I agree. It was mentioned that while distrustful acts have been committed throughout history, today we have the means of hearing about it in real time. It begs the question, is the general lack of trust a product of the constant barrage of negative media that we are exposed to every day?

    We watch “real” people lie, cheat, and participate in substance abuse, and we call it “reality” TV. We watch our government officials break our tax laws, sell positions of power, and lie under oath. We watch mismanaged corporations take millions of dollars from law abiding citizens then turn around and pay their executives exorbitant amounts of money in bonuses.

    At what point do we as a society start to break down and believe that the lack of ethics and morals we see exposed every day is the norm? From this vantage point trusting in others looks very much like a thing of the past.

    The truth is we all have the ability to rise above this by focusing on what we can control- our own ethics, morals, and actions. It all comes down to choice, and we all possess the power to make the right one.

    MNB user Cleve Young wrote:

    In talking about the loss of trust I think it is important to call out an important distinction. The trust a person has in an institution is not necessarily a validation of that institutions trustworthiness. Is it that institutions are less trustworthy now, or are we as citizens simple more aware of what these institutions are actually doing. Unethical and illegal behavior has always been with us, but how much was broadcast to general society? JKF had numerous affairs with women while president of which political insiders and even the press knew about, yet the general public was kept blind to this for decades. Bill Clinton has an quickie affair with a women and it ends up in the headlines relentlessly, for years. Did the ethical behavior of high level politicians decrease in the last 50 years, or is it simply a matter of more transparency? Same thing for companies; I’m willing to bet that sloppy and/or unethical food safety has been around since the dawn of time, but modern technologies and growing transparency (usually unwanted) makes it easier to connect the dots and see when this does happen?

    So is institutional trustworthiness in decline or is transparency and openness on the increase? I think institutions are slowly increasing their trustworthiness, if for no other reason than covering up bad behavior is getting more and more difficult.

    Wouldn’t it be pretty to think so.

    And, from another reader:

    How can we ask the government to be the watch dog over business, when so many in government are corrupt at all levels.  It's like asking the fox to guard the hen house.

    Doesn't anyone find it unusual that most politicians leave office with far greater wealth than they went in with and they still want a lifetime pension at tax payer expense.
    KC's View:

    Published on: April 30, 2012


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    KC's View: