Public vs Private Companies – the Web Battle

You might know (or not) about the recent posting from Amazon on their Q2 results – a US$7 million loss on revenue of $15.7 billion.  You probably didn’t know of Geeknet’s (Thinkgeek’s parent company) loss of US$1.5 million on revenues of $22.0 million  Public companies – you got to love them.  They keep churning out losses and most people shrug their shoulders and figure that these are ‘growth’ companies, thus a few losses for a few years (or a decade or two) are fine.

The Data

Here’s a quick comparison taken from their Q2 financial releases.  Note, Geeknet rolls the entire cost of fulfilment & COGs (stated as Cost of doing business) into one number which is the number I used for the % provided.

Amazon Geeknet (Thinkgeek)
Revenue $15.7 billion $22 million
Loss $7 million $2.5 million
Growth 22.30% 24%
CoGs 71.40% 79.96%
Fulfilment 11.20%
Marketing 4.10% 8.72%

Amazing isn’t it?  In both cases, just paying for their goods and shipping costs approximately 80% of the revenue they take in.  That’s 20 cents on every dolllar dedicated to just making sure they have stock and can ship it to you.   Never mind the cost of acutally getting customers or the operating cost of running the site.

Let’s put it another way – you earn $40,000 a year (gross).  To generate enough money to just pay for your salary using the 80% metric, you’d need to generate $200,000 in sales a year.  Just to pay your salary.

Private Companies (us)

As you can guess, there is no way we could survive on margins like that.  Until recently, Amazon made losses year-in, year-out. Geeknet is still in that stage it seems.  Privately financed companies like us (i.e. small businesses) just do not have the level of capital required to sustain such a business model.

We have to build a business with a better margin from the get-go, which requires us to do things differently from the Amazons and ThinkGeeks of the world.  And in Canada, that means we have to have higher prices due to the lower number of customers available in total.

That’s not to say it’s not possible or viable for private companies to run losses – it’s obvious that we can and have.  However, we have a finite set of funds, while public companies often have a huge cash egg and have access to even more capital if the initial amount isn’t sufficient. Our investors (if we have any) are also often more demanding and have much shorter timeframes.

The Result

At Starlit Citadel, we actually charge the cost of shipping (unless you hit the Free Shipping threshold).  We provide discounts, but we keep our discounts at a level that provides a higher margin on COGs.  We have to basically run a business that is meant to make a profit – soon.  Not one that will make a profit in 5 or 10 years, but one that will do so in 2 or 3 years.

And once we do make profits, we often have to invest it back into the business…

Public and Private Personas

At first, I was going to write a post about the entire Geek Girl issue, but I’ve never gotten an angle on it that I felt comfortable writing about.  Frankly, I think the topic is something Kaja is better of writing rather than me.  Instead, I think I’ll talk about public / private personas especially when dealing with marketing the store.

Being Public

Both Kaja and myself to a lesser extent have a ‘public’ persona.  Kaja’s much more obvious with her being the main employee face in our video reviews.  I, on the other hand mostly post on the twitter account and the blog.  As these are ‘corporate’ personas, they are in some ways different from our private personalities.  As a simple example – both Kaja and I swear a lot less when posting / reviewing for the company.   There’s a certain level of professionalism that is both expected and required when we ‘work’.  While Starlit Citadel allows us to be more ‘us’ than a job in say, a bank; it still requires a level of professionalism.

The problem with having a public persona, especially one online; is that you open up to a lot more comments & discussions than any other job does.  It surely is something that you invite, but due to the nature of how we interact online, it removes some of the perceived barriers between the public and private.

This isn’t to say that it doesn’t happen in other jobs, it’s just that we are in a way both inviting more comments.  There’s a difference between the salesperson you see in the store and the salesperson who invites you back to his house for a BBQ.

The Medium is the Message

Alright, this isn’t exactly right since the medium is the Internet. However, there’s a difference between say a blog post with a video review with a twitter message with a FB post.  Some are perceived inherently to be more permanent (blog posts, video messages) than others (a twitter message).  The same comment posted as a blog post would be taken differently than one on Twitter.

The Private Line

In a way, as public personas we dictate the line that is drawn by what we speak about / discuss publicly.  For example, by never posting about personal events on a public account, we don’t invite comments about our personal lives.  That’s a line that we draw.  I post about the business, so I expect to get questions about the business – but I stay away from actual sales numbers, which is why I’ve never received a question about ‘what’s your sales’.  Again, we set the expectation.

The issue is, while we perceive this line to be set not everyone gets the memo.  Sometimes, its just a matter of lack of clarity – there’s no actual document out there saying do not say X or comment on Y.  Sometimes, it’s because we actually cross the lines accidentally, or just haven’t ‘set’ the lines as tightly in our own minds.   After all, there’s nothing wrong with interacting socially with customers right? Mostly….

Resetting those lines though requires a touch of finesse.  A great example is comments on Kaja’s & Joanna’s appearances on the videos.  Sure, they are pretty and complimenting them on this is fine… but at a certain point, these comments stop being compliments and just become creepy.  However, because it’s a ‘corporate’ account, we have to be careful of exactly how we reset those lines.

That public / private line issue is much more apparent for Kaja than me.  Part of that of course is the medium, part of that is what we discuss (I’m boring with my business posts) and partly, it’s the gender thing.  For some reason, being female in some minds means that the line gets reset back a lot further than if you were male.

Balancing where and how we talk about these things is a constant issue, and frankly; one that is both intriguing in an academic sense and frustrating sometimes on a personal level.