Some recent encounters and old memories have got me hot under the collar on the subject of startup costs for small publishing businesses. I've seen more new business ventures fail from having too much capital or credit when they started than too little. The availability of excess cash or credit is at best a distraction and at worst a steam shovel to help you quickly dig a really deep hole. So this post is intended for those readers who haven't started spending yet. If you're being pulled in different directions by friendly advice from successful publishers, just remember that they've already forgotten whatever it was that really worked to get their businesses up and running. They're just telling you stuff that they won't have to spend a lot of time explaining.
Economists have grown fond of the term "creative destruction" to find a silver lining in vanishing jobs and industries. In some instances they may be correct, but in most instances they are only half right - the "destruction" half. Unfortunately, small publishers and self publishers alike are particularly vulnerable to the lure of spending money on creative productivity tools, pushed upon them by peer pressure and salesmanship. But those very productivity tools often sow the seeds of financial destruction. The worst mistakes are made when publishers fall for the promise of future efficiencies, misapplying the advice of that prototypal American publisher, "A penny saved is a penny earned." A penny potentially saved in the future isn't saved unless the future arrives, and most new publishers don't last that long. And even if the future does arrive, a penny saved is a penny saved, not a penny earned. Earnings require sales. Savings require comparison shopping or doing without. The two concepts are closely related in managing personal finances, not in managing a publishing start-up.
The Wall Street definition of "small business" generally includes companies with up to a hundred million dollars a year or more in sales. Companies with a hundred million dollars a year in sales are correct to focus significant efforts on efficiencies and tax savings. Small publishers and self publishers with less than a hundred thousand dollars a year in sales are insane to spend money on anything that doesn't directly result in more sales. The only investments that make sense for small publishers are publishing more quality books and content and building their market presence.
So what are the productivity tools that start-up publishers need to avoid? I'll start with an integrated accounting product, no matter how inexpensive. It's not the $99 or $129 dollars for a QuickBooks or Peachtree license that wreaks havoc. It's the time invested in setting the software up for non-existent sales, and then the loss of intimacy with your day-to-day business operations that results from turning yourself into a key punch operator. Spending some time every day entering little numbers into nice boxes on a computer screen is no more valuable that putting all the carrots with the other carrots on your plate and making sure they don't touch the peas. Don't you know there are publishers in New York City starving while you're playing with your books?
If you have less than a dozen titles in print and you need to check an accounting package to see how they are performing, you just don't have a head for business. What exactly do you see as your job function if not staying on top of how your titles are doing? The last time I talked to the IRS, they were fine with small publishers using cash accounting unless their sales are over a million dollars a year. Cash accounting means you don't have to associate each expense with each title for tax reasons as in accrual accounting, and can take expenses and sales as the money moves. An integrated accounting package will lead you in the accrual direction for no reason other than it shows off all the bells and whistles. Do you really need to know how much you spent on postage sending out review copies of title A vs title B? Should you be spending your time and money sending out review copies at all?
I've spent a dozen winters in the city of Jerusalem, where little neighborhood grocery stores called Makolets (derived from Kol, meaning all) feature twelve or fourteen foot ceilings, stacked from bottom to top with grocery goods. The stores are often 100 square feet or less, the size of a small room, with barely enough space for the counter stacked with newspapers and pastry. The owner, or the owner's spouse or offspring work all of the open hours, and they know their regular customers by name. I can just imagine a slick salesman convincing a Makolet owner to install a point of sale terminal (complete with a barcode scanner) to track the inventory and make it possible to hire a minimum wage employee to handle the money. What do you think the result would be?
Instead of the owner knowing every customer and hearing every bit of feedback on what's good and bad, it all gets filtered through software and an unmotivated hourly employee. The new breakfast cereal with the big shiny box sells like hot cakes because of the big shiny box, but the owner isn't there to hear all the complaints about how awful it is. The computer software doesn't know that. It just records that the cereal is selling, so the owner orders more and drops the old brands. The customers start shopping at the Makolet around the corner where the owner's family continues to ask, "How are you today, Moshe? How was that new cereal?"
Another killer application for small publishers is contact management software, more commonly known by the acronym CRM, Customer Relationship Management. By killer application, I mean it will kill your self publishing business dead. The idea behind CRM software is that you can capture all of your customer information so you can harass them on a regular schedule to buy more stuff from you in the future. It's gotten so bad that I recall one publisher telling me that he didn't really care about selling a book to somebody, he cared about capturing their information for his CRM software. Hello? Books aren't toilet paper, or at least, good books aren't. If your customers are impressed by your books, they'll search you out for the sequel, or choose your titles over a competitor's the next time they shop at Amazon or a store that stocks the books. They'll favorite your website and tell their friends, online and off. Small publishers have no business trying to "manage" a customer's personal information, you should respect your customer's privacy and be thankful for the business.
Then there's the omnipresent tax software, or the fallback position of an accountant. Your tax software can't explain to you what goes on behind the scenes and your accountant isn't your mother to tell you if you're being a fool. In fact, I've heard horror stories about accountants encouraging clients to buy stuff right after Christmas to get the deduction in the current tax year. There's never a good reason to buy stuff you don't really need for your business, and a deduction doesn't equal a savings. In fact, if you aren't making a decent profit, the sum total of the "savings" you'll realize from your tax deductions is the amount of self employment tax you would have paid on the money you spent, 15.3%. If you think that spending $100 to get $15 back is smart, spend it on carrots and don't let them touch the peas.
Small publishers shouldn't pretend to be large publishers. If you're wasting money on a postal meter in a desperate attempt to convince reviewers that the books are being shipped by a big publisher, you're way too sensitive to be in business. It doesn't take money to make money unless you're in the money business. In the publishing business, it takes books, ebooks, or other published content to sell, combined with the market presence to attract customers, who pay you money for your products. The sum total required to set up a small publishing business can run from a few hundred to a few thousand dollars depending on your starting point, but it's not "money" in the sense of requiring a Small Business Administration loan, mortgaging your house, or going hat in hand to your friends and relatives.
And remember, buying goods and service isn't "doing business" for you, it's doing business for the people who sell you the stuff. I don't begrudge them their living, but let them earn it from people who can afford to support them. You should only have two things in mind when you go into the publishing business: How to write or acquire content that people will be interested in buying, and how to reach those people. You can acquire manuscripts by writing checks, but you can't buy customers, you have to win them.