Counterintuitive

December 12, 2010

Always have liked that word.  Something that is counterintuitive is unexpected, surprising. Counterintuitive results may even seem illogical at first.  A counterintuitive conclusion calls out for examination.

Where exactly is this leading? To something relevant, of course. International Paper Company has sponsored a new website based upon a seemingly counterintuitive argument.  The website is GoPaperGrowTrees.com and the argument goes something like this: choosing and using paper actually benefits forests and the environment.

Poor Richard can hear what may of you are thinking . . . “sheer propaganda from wealthy timber barons bent on despoiling America’s valuable natural resources.”

Admittedly, the source of the argument lends a certain tinge to it’s credibility. Poor Richard, having earned his livelihood (for better and lately for worse) in and around the timber and paper industry, may also be considered a suspicious source.  Yet the argument stands on its own, despite the advocates involved.  It’s born of simple economics and goes something like this:

  1. Forestry is an agricultural business.  This is certainly true in the US and the website supplies the data to prove it.
  2. The amount of a product supplied is directly related to the demand for that product. This is basic economics. Remember the S&D graph in Econ 101?  The price of the product is determined by the intersection of the supply and demand curves.
  3. There is competition for the resources needed for production.  In this case, the competing interest is development.  Most of the timberland lost in the US during the last 20 years was forestland that was eliminated for development. The value of the land resource was greater when developed for commercial or residential use than when employed in agricultural production of timber.
  4. If the demand for forest related products (specifically paper) remains low, prices will not provide an incentive for continued forest management, additional forest lands will be lost, and fewer remaining forests will be managed either for environmental or agricultural benefit.
  5. Finally (and conversely), an increase in the demand for (and price of) print and paper will preserve forest lands and help to insure the best economic and environmental outcomes.

Multiple factors have driven the decrease in the demand for paper and print during the last 3 years.  Foremost among these are the availability of competing technologies (like blogs on the internet), the perception that the cost of print outweighs any benefit it has over competing forms of communication, and the propensity to simply cut the larger identifiable costs when under economic stress.

It would be interesting to be able to measure the actual effect that environmental objections have had on demand.  While Poor Richard suspects that this would be difficult to quantify, there is no doubt that the green objection has made a great excuse for the denigration of print and the diminution of demand for print on paper.  (I still don’t believe that people are really freaking out about printing their emails).

Go Paper Grow Trees LogoWill this signal a return to the good old days of print on paper? Probably not, but it’s still a very effective (if counterintuitive) argument for valuable products that really shouldn’t be as outmoded as popular environmental mantras would make them.   Click on the logo, visit the site, watch the video and let me know what you think. Or better yet, order something printed on paper from the printshop behind the red awnings on Poplar Street.

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The Capital Trap

July 25, 2010

(or why my printshop isn’t like a transformer)

It’s been a while, gentle readers, and I’m sure that many of you have given me up for dead. Well, to paraphrase Monty Python, we’re not quite dead yet. Nonetheless, the images of loading bodies onto the two-wheeled cart are ummmh . . . ominously relevant.

It’s been a very rough two years, and I’m still looking for the corner to turn.  This may be a recession in the rest of the U.S., but in our small market, it feels a lot like a depression. We are struggling with a bad combination of circumstances. We have fewer customers with less money and greater reluctance to spend it. This is coupled with a sea change in the way we communicate that has not at all favored our core business: print. And to state that our resources are limited would be a wild exaggeration. They are simply nonexistent.

I’ve read about the capital trap. Usually it refers to banks and the total contradiction of government demands to both lend more and raise capital reserves. This is prima facie lunacy. How can you do both? Like most small businesses, the printshop behind the red awnings has been slighted when it comes to government largesse; and the banks quit lending to us before the balance sheet deteriorated to the point that Poor Richard could actually understand the bankers’ reluctance.

Poor Richard would like his business to become a Transformer. I’ve always been a little intrigued by these gadgets. The Transformers came along in my college days . . . I remember a slightly older friend’s 5 year old showing me the first one. “Now it’s a car, now it’s a monster machine!” he said as he pressed the button that released the monster.

“Now it’s a printshop, now it’s a monster communications machine!” Alas, were it only so.

The new “marketing services” that we’re all supposed to be so excited about providing did not gain traction in our little town. We’ve done a little, but the time requirements have been high and the return low. There are some product opportunities, but at this point we lack the capital resources to pursue them.

Our little shop is caught in it’s own version of a “capital trap.” When things were good, we invested in what we thought would be the capital equipment that would keep us growing in years to come.  Justification of the equipment was based on the ill-conceived (in hindsight)  notion that business would grow a little, or at least remain stable at mid-2000s levels. In our case, we still have the equipment, but the demand for the production has faded. We’re paying for the equipment, but it isn’t paying for itself.

In a different time, we would just sell the machinery, stomach a little loss and move on. Now, the only market for the machines we have purchased is overseas and the selling prices really don’t even justify the trouble required to move the equipment.  Unfortunately,  the notes on the machinery are not based upon present valuations, but upon the value of the machines before we warped into a parallel universe where printing equipment is worth little more than scrap metal. Naturally, the banks and leasing companies are reluctant to simply concede the devaluation of the machinery or the obligation. It’s kindof like real estate . . .

There is very little solace in the knowledge that we’re not alone in this predicament. Poor Richard has a friend, customer, and fellow small business owner in a completely different line of work that can describe the same scenario; and I suspect that every small business owner can tell some version of this or a similar tale.  Here’s the point:  we won’t be able to grow ourselves out of this depression until we can pay off some of the debt burden that we’re saddled with.

Somehow, the politicians (and the media) have the strange idea that small businesses are “reluctant” to invest and to hire new people. They think that all we need is the right “stimulus.” The latest platitudes and lip service from the pandering politicians of the Potomac comes in the form of a $30 billion fund to encourage regional banks to lend to creditworthy small businesses (see the Business Week article). Poor Richard wonders just who that would be. Wake up! It’s not reluctance that is the problem, it’s resources. I am very skeptical that the small business economy can be “transformed” by simply flipping a magical economic switch and not the least bit convinced that there is yet any understanding of the importance of the small business segment of the economy among those who ostensibly govern our nation.

Reluctance does come into play when it comes to taking on more debt, though. Most of us will never be as comfortable with debt as we may have been before the economic debacle. The good news is that the debt we currently have will one day be retired. The payments do eventually come to an end.  Somehow, some of us will manage to work ourselves out of this predicament; probably despite the feeble efforts of the politicians.  We’ll hold on  until we can find a little money to try the next best thing. And maybe that next best thing will work and we can make some money and then invest in new equipment and hire new employees.

Maybe we’ll even invest in new businesses . . . wonder how medical marijuana would grow in the basement of the old building on Poplar Street?

Life is still grand!


Bang the Drum Again

March 2, 2008

Drummer.gif

What exactly does it take to get the message across, anyway?

I’ve been beating this drum for a long time and I’m getting tired of it.

Karsten-Denson is closing and I’m bummed (Longtime Macon Hardware Store Closing – Macon Telegraph article). One of the remaining memories from my boyhood, Karsten-Denson managed to survive all of the bad years downtown only to close now. An old-timey hardware store, they literally sell everything from lock washers to rabbit traps. Times are bad. They can’t hold on.

Beautiful wife got an email today from a shop that was once located in our small town’s downtown shopping district. It’s a Christian concern called Go Fish that imports handcrafted items from the Third World. The idea is simple and good. Go Fish establishes relationships with craftsmen/artisans in developing nations, enabling them to support themselves and their families. The goods they purchase are sold by franchisees in the U.S., again allowing them (the retailers) to support themselves and their families. It’s capitalism at its best. Everybody wins . . . and the message of Jesus Christ is communicated in the process.

The store moved from sleepy Perry to Warner Robins, a larger community 15 miles north of us. Presumably, the goal of a move to a higher traffic, more visible location was an increase in sales volume and profitability. But apparently this has not ensued. The tone of the email was not so much desperate as disconsolate, citing the economic downturn and urging former customers to visit the shop.

Bang the drum . . . when will we learn to support local businesses? Small retailers, hardware stores, and even printshops comprise the backbone of a local economy, especially in smaller communities. Look around in your community. It’s the local businesses that are really engaged. They sponsor local charities, events and Little League teams, sometimes even when the owners don’t make much for themselves (See my previous diatribe Why We Need Small Business).

With the economic slowdown, times are hard for these folks. (Yes, you can read that “us folks”). Should we not especially support a business that is engaged in the community and trying to benefit others? I am sorry, but Wal-Mart just doesn’t fit my image of the American dream. We were once a nation of entrepreneurs, farmers and small businesspeople who innovated, created value and exported it. We were thinner then, too.

Now we’ve become obese. Have we squandered all of our energy and creativity on a junk food binge? I seems that our ability to innovate, create and to work hard has been supplanted with the desire to consume the most we can at the cheapest price without concern for the consequences. Is it really better to enable exploitation in China for the sake of a cheaper price than to foster a cottage industry in Peru? And what happens to the hardware store, to the small businessperson here in Smalltown, USA?

We are in a recession, even if our President refuses to utter the word. Poor Richard is very suspicious of the theory that supposes we can spend our way out of debt. Our current consumption binge is not sustainable, even and especially when our own government prints and distributes more money to add to the fodder ($600 per taxpayer, no less). The dollar is in decline, a sure sign that the countries that support our debt are tiring of our unwholesome appetites. We do not need to spend more, we need to spend better. We need to consider where the money goes. If we do not reassess our priorities now, the system will crumble.

“Follow the money,” is the old adage, usually alluding to some sort or questionable or even criminal behavior that can be traced back to the source throught the money trail. Reversing the sequence works as well, though. Small business represents the last bastion of the great American ideal: innovation, creativity and hard work. If we follow the money we spend forward, spending it where it will help a local business, our regional economy or a cause we support; we can encourage activity that is beneficial to the economy in the long and short run.

Bang the drum . . . bigger and cheaper is not always better. Forget Wal-Mart. Invest in your own backyard. Support your neighbor. Buy local.