By Allan Maurer
RESEARCH TRIANGLE PARK, NC—Bob Young’s now six-year-old Lulu.com, which cut staff and is moving to less expensive offices, will be profitable this quarter and on an ongoing basis, says Young, who also co-founded and led Triangle-based Linux distributor Red Hat. His advice: get back to business basics.
Young, who will keynote the TechJournal South, Southern Capitol Ventures and NC Council For Entrepreneurial Development-presented Internet Summit Nov. 19 at the Friday Center in Chapel Hill, says “It is an important conference.” (For more information or to register see: http://www.internetsummitevent.com).
Young tells TechJournal South that Lulu.com cut its staff and tightened its belt because, “Even though we have a rapidly growing revenue stream, we continued to run a burn rate.”
That he says, may be ok for startups one or two years old, but for more mature companies such as Lulu.com, “Investors don’t want to hear about negative cashflow, but they are happy to invest in the growth of a good business.
“Businesses with positive cash flow are worth tons of money today, those with negative cashflow are worth dramatically less than two weeks ago,” he says.
Companies have to operate differently than they would “When times are good and there is lots of capital sloshing around,” he says.
“The reality is,” he says, “Lulu has proven its economic model.” In troubled economic times, however, he says, “It’s back to business 101.”
eBooks gaining ground
Technology is really catching up to the market for both eBooks and an alternative to traditional publishing models, Young notes. “Now we’ve got eBook readers from Sony and Kindle and even a book reading application for the iPhone, which was downloaded 300,000 times in the last month or so.
“We’re seeing people both buying more books online and reading more books online. The same transition that happened with music, people first pirating songs but now buying them online from iTunes or Rhapsody, is happening with both physical books and virtual books online.”
Although Lulu “toyed” with a variety of media, from framed art to CD ROMs, the company’s focus going forward will be books, Young says.
“We think the big opportunity is actually in books. Books are a funny sort of duck. It took me a few years to understand this about books, but they’re a work of art that has been authored. I don’t care if the book is about a piece of software or a fantasy novel by J.K. Rowling. The author has to have the ability to tell a story.”
Books will be up to 97 percent of Lulu’s business in the future, he says.
Author’s voice important
Young says that to understand books as a distinct medium, he has returned to concepts of the late media critic Marshall McLuhan that he first encountered during his university days. “The Medium is the Message,” McLuhan famously said, but the concept itself is more complex than the slogan might suggest.
To explain what he means, Young turns to another author who has long been one of his touchstones, Geoffrey Moore’s “Crossing the Chasm.” In that book, Moore argues there is a chasm between the early adopters of a technology products and a larger market capable of sustaining a company. He suggests techniques to “cross the chasm.”
“It is not just that he lays out an important idea,” says Young, “as the author he gives it a tone and conversational style that is important to the reader. He teaches you a concept you would need 20 years of experience to learn. Now a kid out of MBA school can understand everything Moore does about crossing the chasm.”
The point, says Young, “Is that different media require different skill sets. McLuhan said ‘the medium is the message’ and that’s exactly what we found (at Lulu.com). The skill set necessary for someone to produce a CD ROM is very different from that needed for someone to produce a book telling their story.
Authors profit on Lulu.com
“What works on TV and what works on radio is very different. I’m spending a lot of time rethinking McLuhan. The Internet is a different medium.”
One difference: for authors, publishing on Lulu can be vastly more profitable than going the traditional route, even if fewer books are sold.
Young’s own traditionally published book, “Under the Radar,” the story of his Red Hat experience, sold about 25,000 copies at $25 a copy. “I earned $2,311.36,” says Young. “No, I’m not bitter and twisted,” he notes, tongue perhaps only partly in cheek. “The publisher had to print 30,000 to 40,000 copies, deal with returns and traditional publishing costs, so they didn’t make a lot of money.”
On the other hand, some authors on Lulu, says Young, “Are earning more than $100,000 even though they have only sold several thousand books.” That is because Lulu publishes a single book on demand in a typical soft cover trade paperback format at a cost of $7.00—even if only one is printed.
The author can charge what he thinks the customer will pay, say $29.95 and keep 80 percent of the proceeds by publishing through Lulu rather than through traditional publishers.
“We think in this economy, we’ll see a big surge of talented people involuntarily under employed building businesses on Lulu.”
Book marketplace in the works
The company is rolling out a big initiative connected to its acquisition of weRead, a social network to help readers find books of interest to them.
“It sits on Facebook, My Space, any of the leading social networks.” (and has its own site).
It’s a book discovery tool that offers the ratings and reviews ala Amazon, and also provides means to share book recommendations with friends, neighbors, and networks. “We’ll be integrating it with Lulu,” says Young, “And we believe that will enable us to create a marketplace for books and content that will rival any of the other sites out there.”
Young says that while he did have his eyes open for promising new ventures before “the credit markets froze solid,” he made the decision in the last few weeks to “Refocus on my core investments.”
Lulu is the primary one, he notes, but he has also invested in sports franchises such as The Carolina Railhawks professional soccer team.
But the two ventures are not as far apart as one might think, Young says. The sports franchise, he says, “Gives me a more fundamental understanding of human behavior when it comes to consumption of content, such as “What creates great sports content?” Sports fans, he points out, devour content about their favorite teams and players.
On the economy as a whole, Young says, “The world is not coming to an end. I would like to believe the politicians who want us to believe that everything will be back to sunshine and daisies in days. But I think the economy has fallen off a cliff and we’re in for a severe recession, short or long.”
On the Web: www.lulu.com; www.carolinarailhawks.com
Southeast Venture Conference, February 29 – March 1, 2012 at the Ritz Carlton in Tysons Corner, VA – Where Smart Money Meets Smart People.
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