Don’t Sell to the Demographic, Serve the Demographic

Just ran across this story from Inc. The important point to me was the quote toward the bottom from Antonio Swad, an entrepreneur of Italian-Lebanese descent. Many years ago he opened a pizzeria in a neighborhood with a high proportion of Latino residents, and this is his perspective on using demographic knowledge to boost business:

People look at the growth of the Hispanic community in the U.S. and their eyes will glaze over when they see the disposable income numbers…[but] this is a community that you need to serve primarily and sell to secondarily.

How did Mr. Swad accomplish that with his pizzeria? You might actually remember one of his tactics, as I recall reading a story about it a few years ago. He began accepting pesos as payment, which spurred the expected outcries from xenophobes and isolationists (those are the nicest terms I could think of for these groups). And Mr. Swad’s enterprise now? An empire of nearly 100 restaurants in 6 states.

Social Media and Marketing, Take 2

Okay, in the interest of fairness and equal time and all that claptrap (and because my fundamental interest is my readers’ business success), here’s an article with proof–of various sorts–of the value and measurability of social media marketing: http://searchenginewatch.com/3635665. I like Erik Qualman, because he is an evangelist who makes an effort to address his rhetorical opponents with objective arguments.

One thing you might notice is that success in social marketing may be easier for certain types of business. For example, the blender company and its “Will It Blend” video series. This particular product, along with a slightly zany concept, could be a case study for YouTube viral video. Other products may not lend themselves to such stunts. And I’m not sure many smaller companies are in a position to give away 100 cars like Ford; one of the mantras of social media cheerleaders is, “And it’s nearly FREE!” Well, donating over $1 million in product isn’t very free.

What’s the takeaway? In spite of my pessimism on this subject, I think analyzing the examples from Qualman’s post and figuring out if your company or product has any similarities–and exploring those in your next marketing brainstorming meeting–could truly be beneficial.

SBA Makes Small Businesses Bigger

The top officials at the U.S. Small Business Administration have apparently decided that the fastest, easiest way to help American small business is to simply redefine large businesses as small ones. This might help their public affairs staff from having to answer embarrassing questions like, “Why did those contracting dollars supposedly set aside for small business go to that huge corporation?” But, it probably won’t do much to help real small businesses and the entrepreneurs who launch them.

Is Social Marketing Different for Hispanics?

Given the fact that I have cultivated a high level of skepticism regarding two widely held beliefs, I’ll write this post as an exercise in contrariness.

The first thing that I don’t necessarily believe, in spite of my chosen career path in marketing and the overwhelming amount of content that’s been generated by marketing cheerleaders: Businesses of all sizes and stripes should pay very close attention to–and engage with–the current social media scene.

Number two on the list: Hispanics are especially drawn to and driven by their experiences on social networking platforms. (See this breathless commentary by Katherine O’Hara on the exciting opportunities awaiting marketers who are smart enough to take advantage of the latest trends.)

Rubbish.

For one thing, as I’ve previously written, there is no “Hispanic market.” You can call them Latino, you can call them Hispanic, just don’t call them herds of cattle, because they don’t act as a cohesive group from a sales and marketing perspective. This is simply a trick by agencies and gurus who want businesses to pay them to help figure out how to address these “untapped opportunities.” Ms. O’Hara herself describes this fragmentation toward the bottom of her piece, yet the rest of the piece implies something else.

And for some reason, I find the stereotype a little offensive when professional writers and marketing analysts state that Hispanics are more likely to visit social media sites because of the peer-focused, communal nature of their upbringing and environment. In fact, if they do visit social sites more frequently it may be mostly a result of a skewed age demographic compared to other groups. That is, the Hispanic population in the U.S. is on average younger than the general population, and younger generations are clearly more tech- and Internet-savvy.

Now, the bigger and more controversial topic, “Why Big Corporations and Small Business Should Not Obsess Over Social Media.” First, have you ever heard of a social media “campaign” that really worked, and proved its success by any objective standard? How do you track conversions that result from a social networking action?

I have some knowledge of social media exerting a negative effect (see United Breaks Guitars), but no clear evidence of resounding success by any company or agency that sails these waters. On the other hand, if you remember the old adage, “There’s no such thing as bad publicity,” then maybe you think United has actually benefited by the YouTube exposure, but not by its own conscious action.

Look, I’m not saying that you can’t drive customers to your site or make sales using social media outlets, but for most businesses you’ll have to think creatively and find your own well-defined niche. Sounds a lot like traditional advertising, doesn’t it? If you make and sell a revolutionary knife sharpener, you might land a few thousand sales based on a YouTube video. But if you want to truly make it big, try and land a contract selling your wares through Target or another large merchandiser. For the vast majority of small businesses, the virtual world is still not the place to make money.

If you simply must get into social media marketing, please read and apply these concepts before you start. As you can see, properly maneuvering within the social networking space can be very labor intensive, so start small and proceed slowly.

Entrepreneurs often look for the newest, biggest, bestest solutions to their problems, but I’ve found that the fundamentals rarely change. Beware the hype.

There Is No “Hispanic Market”

But there are a number of Mexican-American markets, Dominican-American markets, and so on. While many marketers and demographers research and discuss numbers and projections for the U.S. Hispanic market, the homogeneity of that market is simply a myth. As you can see by scanning Pew Hispanic’s Country of Origin Profiles for five major Hispanic groups in the United States, there are significant differences in populations with different ancestries. For example, the median age of Cuban-Americans is 40 years, but the median for Mexican-Americans is 25 years old. If you are planning to sell products or services to one or both of these groups, that’s just one of many differences you should be aware of.

If you come from a Latino background, you already know this. You understand that Salvadorans aren’t Dominicans, that they eat different foods, listen to different music, and have different tastes and values. If you are not Latino, but you view that collective population as a significant target market, make sure you know who you are marketing to.

U.S. Small Business Administration Offers Videos on YouTube

The SBA recently launched their own channel on YouTube, with 15 original videos as of today. The majority are part of a series of entrepreneur interviews on various topics, collectively titled “SBA Delivering Success.” The information shared by the business owners isn’t ground breaking, but I think it’s a good idea to study those who have achieved success and emulate some of their behaviors and attitudes. And even when we do understand, in theory, the best practices concerning a particular endeavor, it often helps to see how real people have implemented those best practices to drive the point home.

SBA Expands Microloan Program

Nice to see that the SBA is taking our advice and expanding the microloan program with funds from the Recovery Act:

With the American Recovery and Reinvestment Act funding an additional $50 million for loans and $24 million for technical assistance, the U.S. Small Business Administration is expanding its Microloan program and increasing access to capital for small businesses across the country.

The $24 million for technical assistance is to bribe…I mean, “help” new loan intermediaries (banks or other microlenders) conduct training and counseling for borrowers. This helps because banks don’t have a lot of incentive to make these low-profit loans otherwise. Their main reward might be the customers who are attracted through the microlending program and end up with a larger, more lucrative business loan at some time in the future.

This is all well and good, but I’m not sure $50 million will make much of a dent.

More information about the SBA Microloan program is located here.

SBA ARC Loans for Emergencies Only?

I overlooked some details when reading about the new SBA-guaranteed American Recovery Capital loan program…file any earlier, positive posts in the “seemed like a good idea at the time” drawer. As Gene Marks of Business Week points out:

To qualify [businesses] have to show evidence of immediate hardship, like a significant drop in sales, trouble meeting payroll, or a credit line cutoff.

As Mr. Marks astutely comments, isn’t this the sort of thing that got us in trouble in the first place? That is, making loans (most recently mortgage loans) to those who had the least likelihood of repaying? It does seem to reward those who have made the worst business decisions, who are now in such dire straits that they can’t pay their employees. It would probably be much cheaper to simply let the workers get laid off and pay them unemployment benefits, but that would be common sense. Not the federal government’s style, apparently.

Fortunately for the American public and the overall business climate, most bankers (gasp!) are shrewdly avoiding the ARC program. The financial geniuses may not have a good long-term record (where do we start? the Savings & Loans debacle, dotcom IPO bubble, housing collapse?), but their short-term memory seems fine, and it’s a little too early to start making high-risk loans given the events of the past year.

Why Can’t Small Businesses Get the Money?

I’ve written a few posts about the current availability of borrowed capital for small businesses, mostly from the perspective of the U.S. Small Business Administration and lenders. The SBA has recently created new loan programs, improved the terms of existing programs, and taken other steps to increase the rate and volume of small business lending. Lenders claim they have money and are eager to lend it out.

So, why do small business owners and leaders report that money is hard to come by? My evidence for this statement is purely anecdotal, but I believe it is true. And I believe the answer might be fairly simple (though I’m hoping readers will set me straight if I’m wrong): the conditions for obtaining a loan are simply too onerous for many people who might otherwise borrow to start a business. What are the two main conditions that stand as stumbling blocks? Credit scores and collateral. (One other obstacle may be that the size of loans offered is too large for those who want to start small–a subject for another day.)

Let’s ignore the collateral issue for now (see comments from Dr. Bornstein below for more insight), and focus on credit. I’ll say right now that I think credit scoring provides a useful function in society; it enables those of us who might want to lend money the means to determine the probability that we’ll be paid back. In theory, this type of ranking should benefit both the borrower and lender. However, in reality I’m not sure that the system is working on behalf of the borrower.

What’s the difference between a FICO score of 645 and 655? One late payment? A bounced check? Who knows, but it could be the difference between getting a small business loan and not, or getting a 9% interest rate versus a 12% rate. Who decides where to draw that line?

Are historically underserved populations (not synonymous with “minority,” but probably a nicer way of saying “poor”) unfairly punished on current credit scoring mechanisms by some inherent bias in the system? As has been shown in studies of educational testing bias, the statistics and criteria used to create the scoring system may naturally favor certain segments of the population. To get a sense of the mystery and confusion surrounding credit scores, check this out.

During my training as a real estate agent, I was repeatedly warned not to engage in any behavior or speech that might imply I was “steering” clients away from (or toward) certain areas or neighborhoods based on that locale’s racial makeup. A violation can result in a staggering fine from the federal government, and likely a suspended license from the state agency that governs real estate.

Do the current credit scoring formulas penalize certain cultural characteristics, in effect “steering” lenders away from those who need business loans the most?

Best Time to Start a New Business? During a Recession!

Did you know more than half the 2009 Fortune 500 companies (the largest companies in America by annual revenues) were founded during a recession or bear market? That’s what the Kaufmann Foundation recently reported in a study titled, “The Economic Future Just Happened.”

What makes a recession or down market a good time to launch a business? The study notes that more people are out of work, which increases both the pools of potential entrepreneurs and their potential employees. Though financing may be more difficult to obtain, many new businesses don’t rely on borrowed capital. In the end, however, there are no definitive numbers or data to show why recessions might be a good time to found a company.

Do recessions actually trigger entrepreneurial activity? It does seem logical that higher unemployment rates might lead to higher rates of business formation. But that doesn’t explain why some of these businesses grow to be the largest in the nation.

The fundamental lesson here is that the country’s overall economic condition shouldn’t overly influence an entrepreneur’s decision on whether to start a new firm.