The First Steps — An introduction to the future of small business
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M A K E WAY
E D ITOR
Caleb Kramer P UB L ISHE R
Mitch Kapler PRO D U C E R
Kyle Studstill A RT D IREC TOR
Monica Nelson D ESIG N E R
Lizania Cruz PH OTO G R A PH E RS
Brian W. Ferry David Brandon Geeting COPY W R I T E R
Spencer LaVallee
All images (where applicable, of course) and text Š MAKEWAY 2013. This work is distributed under the Creative Commons Attribution-Noncommercial-Share Alike license. If you wish to use or reproduce any of this content in a commercial context explicit permission is required. Please contact us directly. This work is licensed under a Creative Commons Attribution-Noncommercial-Share Alike 3.0 United States License.
T A B L E O F C O N T E N T S
PROLOGUE — AN UNSEEN SOURCE
CHAPTER ONE — DATA IS THE NEW OIL!
McNally Jackson and survival of the fittest. p. 6
The Rise of Square, and gelato. p. 14
CHAPTER TWO — IN IT TOGETHER
CHAPTER THREE — CO-CREATE
Crowdfunding and the rally call. p. 24
More than a shaker, the aftermath of kickstarter. p. 38
CHAPTER FOUR— ON BEING POWERFUL
EPILOGUE — THE WAY FORWARD
Authenticity, relationships, and the new craftsman. p. 56
Make your way. p. 64
HI, WELCOM E TO M AKE WAY
Today’s economy is portrayed as one filled with small business turnover and financial turmoil. We’re told that the very people who make America one of dreams are the ones struggling to survive. Yet, living and working in New York City’s Lower East Side, we’re witnesses to an exuberant class of entrepreneurs filling our community with diverse cuisine, fashion, art and business. Despite the frightened media perception, creative business men and women are harnessing technology to deliver a meaningful brand and a superior product, with fewer resources. As our conversations—and observations—became increasingly more absorbed by this commerce takeover, we decided to take time off from our nine-to-fives in digital marketing to dig in. We hit the streets - across the country, meeting up with small business owners, technology startups and various experts, and we dove into prescient academic research. Overthe past year, our appreciation for small businesses has only grown as we’ve documented the passions that drive tomorrow’s economy. MAKEWAY is an editorial journey. It’s our story; it’s the story of today’s creative entrepreneur; it’s the inspiration behind the next great story to shake America. This is just the beginning; we look forward to writing the next chapter with you. Enjoy! Caleb, Kyle and Mitch
A B O U T
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PROLOGUE : AN UNSEEN SOURCE
P R O L O G U E
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P R O L O G U E
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“We are living in a storm where a hundred contradictory elements collide; debris from the past, scraps of the present, seeds of the future, swirling, combining, separating under the imperious wind of destiny.” —Adolphe Retté, La Plume In the beginning there was change. Seasons would come and go, the tide rose and it fell… the world rotated to a particular rhythm. It was expected. More recently, however, something about change itself began to change. It accelerated. What once offered a subtle sense of security now presents itself as reason for uncertainty. Moving so fast is disorienting. Go no further than Main Street to see the effects of accelerated change in action. With every new store opening comes another closing. Each wave of ambitious young upstarts throws the rest off balance, testing the endurance of those who came before them. Despite this constant uncertainty, there are still those that find ways to not only survive, but to flourish. McNally Jackson, one of New York City’s finest independent bookstores, was the first that we came across in our journey. Positioned in Lower Manhattan’s SoHo neighborhood, it has a gravitational pull that draws many unsuspecting customers in through its front doors. Step inside and you’ll notice how everything serves a purpose. End tables pepper the floor, featuring
books arranged into thoughtfully curated collections, thoughtfully teasing customers to come in just a little further. Then, to the left, there’s a cafe that offers nourishment and generates positive energy for the rest of the space. At some point, there’s nothing one can do but surrender to curiosity, a hypnotic effect that is obviously good for the business. McNally Jackson has seen it all. It has lived through a decade full of conversations about the rise of Amazon and e-commerce, about digital publishing threatening to bring on the death of the book and about bankruptcy of booksellers that had since existed for over 20 years. It’s a wonder that the business is doing so well. Businesses rise and they fall, but some, like McNally Jackson, live on through some sort of renewable energy. There’s something mysterious at play here, something deeper than good bookkeeping and a great location. Are there others that have it figured out? There must be. Who are they and what is it that enables them to survive constant change?
Adapt or die:2-6
PINK PONY
(1998-2013)
Businesses of all sorts French bistro in Manhatare struggling to adapt tan’s Lower East Side, to the changing ecoknown among its artist nomic landscape. A and writer customers as variety of decades-old one of the last great bohemian enclaves. establishments have Parting words: closed their doors “The neighborhood has forever. changed...the original clientele has moved elsewhere.” -Lucien Bahaj, owner BLEECKER BOB’S
( 1967-2012) Greenwich Village record store that was a notable favorite among music legends like Robert Plant, Frank Zappa, and David Bowie.
Parting words: “The whole village is changing, especially this neck of the woods. Things are getting little more upscale.” -John DeSalvo, long-time employee HINSCH’S
(1950-2013) Mid-century diner in deep Brooklyn’s Bay Ridge, selling old-fashioned soda fountain drinks, classic burgers, and egg creams for over 6 decades.
Parting words: “The area no longer supports this kind of establishment... Bay Ridge is more of a fast food kind of place now.” -Roger Desmond, co-owner
P R O L O G U E
L E N OX LO U N G E
(1940-2013)
Jazz spot in Harlem that hosted greats like Billie Holiday and Miles Davis.
Parting words: “I’m sad about it, but I’m realistic. I can’t do too much about it.” -Alvin Reed, Owner TAV E R N O N T H E G R E E N
(1934-2009)
American cuisine establishment that overlooked a series of surrounding Central Park gardens, often ranking among the highest-grossing independent restaurants in the United States prior to its late-decade closing.
Parting words: “In filing bankruptcy, the restaurant cited the national financial crisis as instrumental in its closing.” -Anonymous
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P R O L O G U E
St.
Pr inc
52 Prince St., next to the modern-looking mac & cheese bar.
It’s been here since: December 2004. 10
Best time to go: Try stopping in for the small business book club, 2nd Tuesday of each month.
Check out the: Featured local authors who sell from the in-store selfprinting machine.
Snack on: The treat that is paired with your favorite author’s quote on the menu.
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P R O L O G U E
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P R O L O G U E
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P R O L O G U E
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CHAPTER ONE: DATA IS THE NEW OIL
C H A P T E R O N E
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C H A P T E R O N E
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Two scoops of ice cold gelato. $4.25. Deal! Swipe. $0.12 is sent off as a processing fee to a company far away in the form of ones and zeroes, while the remainder goes down in the books of il laboratorio del gelato—ice cream connoisseur Jon Snyder’s experimental kitchen in New York City’s Lower East Side. And with that, we’re left to enjoy one of over 64 million possible flavor combinations. A simple swipe that comes with a tasty treat. il laboratorio del gelato uses Square, a service that allows anyone with an Android or iOS powered mobile device to accept electronic payments. Merchants sign up to receive a free physical card reader that plugs directly into the audio jack of a smartphone or tablet. It’s a sleek looking contraption, easy to use, and unsurprisingly...it’s square.
The rest of the service comes in the form of two separate apps—one for customers and one for businesses. The first app is Square Wallet, used by customers to make payments and set up tabs. The second, Square Register, is an iPad app that effectively replaces a merchant’s cash register. Transactions are charged at a low rate of 2.75%. Like many startups, Square was born out of a real life problem. The idea was conceived in early 2009, when artist Jim McKelvey was struggling to sell a $2,000 piece at an art fair. People don’t carry around that kind of cash and credit cards weren’t an option either. McKelvey explained his problem to friend and Twitter creator Jack Dorsey, who then helped brainstorm and prototype a solution that would eventually become Square.
FEB 2013 The “Business in a Box” turnkey POS system launches for small business owners MAR 2012
TH E RI SE OF S Q UAR E OCT 2012 Merchant Directory launched
MAR 2009
Jim McKelvey brainstorms the early concept with Jack Dorsey
$32Mest
DEC 2012 Square introduces gift cards
Square launches as an app in the iPhone App Store that allows people to accept payments through the hardware plug-in NOV 2011 Card Case iOS App adds support for hands free payment
FIRST MILLION DOLLARS PROCESSED PER DAY AFTER 2 YEARS OF ITS IDEATION
MAR 2012 Square debuts the iPad Register app with analytics. Card Case becomes Pay With Square
NOV 2012
$28M $30M
JUN 2012 Square Register integrates a loyalty punchcard program
$25M
JUN 2012
$17M
$20M APR 2012
$14M
NOV 2011
$15M
$11M
MAY 2011 Card Case and Register apps launch, separating the service for business owners and their customers
$10M
Product Bechmarks
JUL 2011 MAY 2011
$4M
$5M
$3M
MAR 2011
$1M
Marketing Benchmarks
2011
2013
2012 FEB 2011 Square turns 2, celebrating with a Times Square billboard
APR 2011 Sales placement on Apple's online store
JAN 2012 Obama campaign uses Square for fundraising
O N E
$35M
AUG 2012 Square introduces a monthly pricing option for business customers
MAY 2010
C H A P T E R
APR 2012 Jack Dorsey interviewed by Charlie Rose
MAR 2012 Partnership announced with New York City Taxi Commision
AUG 2012 Square begins point-of-sale partnership with Starbucks
FEB 2013 Square begins partnership with Blue MAR 2013 Square is covered by 60 Minutes
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C H A P T E R O N E
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Just a few years later and Square is being used by millions of sellers across North America. Garage sales, fashion boutiques, restaurants—you name it, anywhere business is being done, Square is there. Even Starbucks is involved, with over seven thousand of its stores now accepting Square Wallet. What drives Square’s success is its simplicity. It re-imagines the most fundamental building block of commerce: the exchange. Square makes this ordinary and everyday process seamless and even enjoyable for people on both sides of the counter, setting a bar that has been hard for its many competitors to live up to. Today, Square is tracking at least $15 billion in transactions a year . If you do the math, that’s an average of $41 million a day and almost $2 million an hour. It makes our two scoops of gelato look like a blip on the radar. And it is a blip, but it is not forgotten. Because Square is a product of the Internet age, our purchase is captured and analyzed alongside every other purchase being made with Square. Somewhere behind closed doors, Square is watching the pulse of grassroots commerce happening in real-time.
AVERAGE TRANSACTIONS
12 9
3 6
$41 M A DAY
12 9
3 6
$2M AN HOUR
“DATA IS THE NEW OI L !”
In 2011, the New York Times published an article comparing data to coal and iron ore of the Industrial Revolution. The McKinsey Global Institute declared data to be the next frontier for innovation, competition and productivity. It’s thanks to startups like Square that small businesses now have access to data as well. Until recently, small business owners had only pen and paper to track
transactions. Now they have access to digital tools that are comparable to those being used at large corporations. With analytics tools now in their hands, business owners can sift through historical transaction data to find insights that will help optimize inventory, hours, staffing, and promotions, all of which can ultimately result in better customer service. Anyone can now mine for oil.
C H A P T E R O N E
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“How many cups did they sell that day, or what percentage of people bought biscotti? What was their busiest hour; which is their busiest day? A key differentiator in terms of running a successful business is understanding how it is performing and getting clear, simple data that aids decisionmaking... We put a high premium on the data that we are giving to our merchants, so that they can build their business and ... recognize and treat customers better.� JAC K D O RS E Y, C E O S Q UA R E 5
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C H A P T E R O N E
Another way data is helping small businesses become more effective is through reinforcing customer loyalty programs. Classic marketing theory tells us that 80% of a company’s profits come from 20% of the customers. It goes without saying who to invest in. New digital services not only help identify this 20%, but go a step further to craft highly detailed
Loyalty Programs for the Small Business
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A number of digital loyalty programs now offer solutions that let small businesses leverage customer data, helping to lock in that vital 20% of customers.
profiles of individual customers. Instead of simply rewarding a customer with a free cup of coffee every sixth purchase, you can now offer their favorite snack with a handwritten note. Square and similar services are making life a whole lot easier for small business owners. Through mobile interactions, it is now easier than ever to gather
Sweet Tooth
est. 2009
They say they are:
“A turn-key points and rewards app for your eCommerce store.” What stands out:
Offers the backend for a fully-customizable points system to reward customers for their online activity. The damage:
Starts at $49 a month for startups, $127 a month for small businesses, and also offers custom packages Found at: www.sweettoothrewards.com
FiveStars
est. 2010
They say they are:
“A card that helps local businesses build digital connections with their real-world customers, resulting in increased engagement and ultimately more business.” What stands out:
FiveStars integrates with existing point-ofsales systems, requiring customers only carry a card that is scanned by the business’ staff. Once a customer has scanned, they can be reached with demographic-tailored promotional messages over text and social channels that they have linked to their card. The damage:
Varies Found at: www.fivestars.com
timely and reliable information about customer behavior and preferences. But there is still an elephant in the room. Taking action can be risky, even with an abundance of information. Developing new products and services consume both time and money, resources that aren’t exactly easy to come by. Are these digital tools really helping us innovate
fast enough or are they just optimizing our existing strategies? Real transformation exists outside of the box.
C H A P T E R O N E
LevelUp Belly
est. 2011 They say they are:
“A universal loyalty program that offers exceptional rewards at the businesses you love, giving boring loyalty campaigns a good kick in the pants!” What stands out:
In addition to the standard points system that businesses customize through their individual iPad scanners in-store, the Belly email newsletter delivers customers personalized Belly Bites— discounts and incentives towards places they haven’t yet been to. The damage:
Starts at $79/mo Found at: www.bellycard.com
LevelUp
est. 2011
They say they are:
“The fastest (& cheapest) way to accept mobile payments and engage with customers with a high-tech loyalty program.” What stands out:
By integrating the payment system into the app itself, customers who have downloaded the app and linked their credit card information have the point-of-sale and the loyalty card both within their smartphone. The damage:
2% per transaction Found at: www.thelevelup.com
PunchTab
est. 2011
They say they are:
“A service for publishers, retailers and applications vendors to develop an integrated rewards program with no development or marketing cost.” What stands out:
The platform incentivizes online activity from customers, awarding them redeemable points for sharing promotions over social networks, signing up for email newsletters, visiting webpages, and participating in online sweepstakes. The damage:
Starts at $99/mo Found at: www.punchtab.com
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