New research shows the economic importance of home-based businesses: They account for more than half of all U.S. businesses and employ more people than venture-backed companies.

Stephen Labuda, 35, is planning to hire a fifth employee for the Web development firm he runs from his home in Cambridge, Mass. CARBONARO PHOTOGRAPHY

More than half of all U.S. businesses are based at home. These companies often are dismissed as quaint hobbyist ventures, but new research suggests that’s a mistake. An estimated 6.6 million home-based enterprises provide at least half of their owners’ household income. Together these “homepreneurs” employ one in 10 private-sector workers, and by many measures they’re just as competitive as their counterparts in commercial spaces.

Ask Stephen Labuda, the 35-year-old president of Agency3, a Web development firm he runs from his home in Cambridge, Mass. A former programmer at Deutsche Bank (DB), Labuda started building Web sites as a side job in 2003 and took the venture full time three years later. Agency3’s revenue is in the millions, and Labuda is about to hire his fifth employee, who will work remotely, like the rest of the staff and the slew of contractors he taps. “I’m not intending to go rent office space,” he says.

You can trace the rise of home-based businesses to the early days of telecommuting in the 1980s and the mass adoption of the Internet in the 1990s. Cloud computing, online collaboration, and smartphones have accelerated the trend, and recent research clarifies the economic significance of companies like Labuda’s. “We’re seeing more and more home-based businesses that are real businesses,” says Steve King, who coauthored the new report with his wife, Carolyn Ockels. (The couple runs Emergent Research, a small research and consulting shop, from their home in Lafayette, Calif.) The pair analyzed U.S. Census data and Small Business Administration research, along with data from the Small Business Success Index, a survey of 1,500 companies sponsored by Network Solutions and the University of Maryland’s Robert H. Smith School of Business.

WIDE ACCEPTANCE AND LEGITIMACY
Here’s more of what they found: The 43% of home-based businesses that provide at least half of the owners’ household income are, on the whole, smaller than non-home-based companies. Only about 35% have revenue above $125,000, compared to 75% for non-home based businesses. But they measure up to other small companies on key aspects of doing business, including access to capital, benefits to workers, marketing, and innovation. On average they have two employees, including the owners, and together they employ more than 13 million people—more, King notes, than venture-backed companies. (Venture-backed companies employed 12.1 million people in 2008, according to the National Venture Capital Association.)

In some of these companies, the operations are concentrated in the owner’s home. Others use their residence as a headquarters but do most of their work at clients’ homes or offices. The variety of home-based businesses cuts across industries, but the top sectors are business and professional services, construction, retail, and personal services.

A few trends are driving the growth of sophisticated home businesses. First, technology has made it easier to start and run a business from anywhere. But just as important, there has been a change of consciousness in the business world to recognize home-based enterprises as legitimate.

Labuda has seen that shift at Agency3. “When I first started, I really felt compelled to go rent an office. I felt like in order for me to be taken seriously as a business, I had to have an office that my clients could come to,” he says. It didn’t matter—clients didn’t want to visit him. Labuda meets most of them at their businesses or at coffee shops. He also uses on-demand office space, where he can rent a conference room by the hour, if needed.

LOWER COSTS ARE A COMPETITIVE EDGE
Now, Labuda never feels that his working from home damages Agency3’s credibility. Instead, it’s a selling point. “It’s reflected in our pricing that we don’t have the same kind of infrastructure costs and fixed costs that some of our competitors do,” he says.

Indeed, the most obvious financial benefit for home-based entrepreneurs is lower operating costs. A 2006 SBA study compared tax returns of sole proprietors who deducted home-office expenses with those who deducted commercial rent. That analysis found that home businesses, on average, had lower sales and net profits than companies in commercial spaces. But profitable home-based ventures retained a greater share of their total receipts as net income: 36%, vs. 21% for non-home-based businesses.

King predicts that as large companies try to reduce their fixed costs by outsourcing business functions, small home-based enterprises will play an even larger role in the economy. “Over the next 20 to 30 years, you could see the percentage of people who are self-employed and home-based double, potentially,” he says.

[Via: BusinessWeek]

Justin Gagnon quit a secure IT job, moved in with his parents, and turned their catering business into a $4 million provider of healthy school lunches.

Entrepreneur: Justin Gagnon, 31

Background: After graduating from the University of Notre Dame in 2000 with a bachelor’s degree in business administration, Gagnon worked for Level 3 Communications (LVLT) in Broomfield, Colo., building order-entry systems. During a short visit home to Danville, Calif., in 2003, to help his father build a Web site for the family catering business, Gagnon came up with the idea of transforming it into a full-time provider of healthy lunches delivered to local schools. He quit his job, moved home, and recruited two college buddies to help him build the business.

The Company: Gagnon and his friends, Ryan Mariotti and Keith Cosbey, each invested $6,250 into launching Children’s Choice; Gagnon’s parents put in an additional $6,250 and took a 25% ownership stake. In 2003, its first year, the fledgling business served about 550 lunches a day to eight schools in the San Francisco Bay Area and took in $400,000 in revenue. Today, its 90 employees prepare an average of 10,000 lunches a day for 122 schools throughout California.

Revenue: $3.9 million in 2008

His journal: If it wasn’t for my dad continually pestering me to come to California with a couple of friends and “build a Web site” for his school lunch business, I might have never taken the leap. But it was his pushing that made me curious about what was going on in his industry. I found that there was no one really focusing on school lunch. Everyone in foodservice did something else first—a restaurant, a deli, a caterer—and none of them had the resources or the dedication to truly focus on school lunch the way I thought it needed to be done.

When it comes to school lunches there are three distinct stakeholders: schools, parents, and kids. Schools want hands-off administration, no capital investment, and happy parents. Parents want convenient ordering, nutritional meals at a relative value, and happy kids. Kids are happy when they are given a say in what they’re eating and when what they’re eating flat-out tastes good. I knew that building a company positioned to exceed all of these expectations would be a huge undertaking. I also knew I couldn’t do it by myself.

I asked Ryan Mariotti and Keith Cosbey, two of my best friends from college, to help me refine the idea. In 2003 we flew to California and pitched my parents on spinning off the school lunch portion of their small catering company into an enterprise focused on serving healthful, kid-friendly lunches to schools that lacked the infrastructure and expertise to do it themselves. After sitting speechless for two straight hours during our pitch, my parents eventually realized we were serious about leaving our secure jobs as IT professionals to learn kid catering from the ground up. They agreed to teach us everything they knew.

We started off with eight schools that my parents already serviced but the cash flow didn’t even come close to sustaining three new partners, let alone retaining earnings for future growth. We all moved in with my parents and spent the first couple of years barely paying ourselves enough to warrant the paper the checks were printed on. We would drag ourselves into the kitchen at 5 a.m. to prep and cook food, visit school sites during the lunch hour, and eventually end our days in our “office” [a room that adjoined Keith's bedroom]. There we built our IT systems and discussed every aspect of the business until midnight or later. The next day we got up and did it all over again.

As a startup, we experienced one of our most deflating lessons after discovering that no matter how hard we tried to build accurate assumptions into our business model, the truth always seemed to be far from our speculations. For starters, we thought that with greater volume came more purchasing power, and with more purchasing power came lower prices.

What we failed to factor in, however, was that my parents were procuring many of their ingredients from Costco (COST) and similar restaurant supply houses that already offered rock-bottom prices. As our volume grew, the daily task of going to Costco together to buy product for the following day became unsustainable, and we knew we had to look to food-service distributors. We were shocked to find out how much more our products cost through these channels—and how well Costco and others had negotiated their pricing. Not only did we not save any money, we spent quite a bit more through these distribution channels. It took years of substantial growth to even come close to big-box pricing.

One advantage we did have was that our collective expertise was in IT and we were able to realize efficiencies by streamlining many manual processes in the business. We built an IT system that would scale and grow with our business; it was far more sophisticated than would be expected of a company our size. That was the easy part. The hard part was figuring out how to scale the operation to match the sophistication of our technology.

When we first came on board, the distribution model for the meals was based on parents from our schools working for us part-time. They would pick up the lunches from our central kitchen and deliver them to the schools in thermal bags. As we added more schools, we realized there were a whole host of issues around scaling with this delivery model—not least, finding replacement drivers to accommodate the field trip schedules of our employees and finding a place to park all of those SUVs. Developing a model to distribute our meals in customized, heated transport ovens and utilizing truck distribution was costly. As sophisticated as our systems are, we haven’t yet found a way to automate our trucks to drive themselves.

Our business plan also had major flaws in our growth projections. While we were lucky to have some level of historical financials from the years my parents ran their program, we were too inexperienced as entrepreneurs to understand that profitability does not scale linearly. We knew that we would have to take on additional overhead as we grew, but we vastly underestimated just how much the timing of the overhead would impact profitability at different stages of the business. It turns out that the profitability of an independent operator is actually quite good if the individual keeps busy, as the business rests almost solely on his or her shoulders. But eventually, it’s not just you in your business. It’s you managing people. And then you are managing people who manage people. And then you are directing people who manage people who manage people.

At each stage of the game, you are most profitable the moment before your volume pushes you into needing the next rung of management—at which time your profitability dips yet again. The key is deciding how large you really want your business to become, and how to maximize all of your resources at that stage without overburdening them. We haven’t targeted a revenue figure for our optimal size yet, but we envision this being the point at which we all can focus on the job functions we love most, day in and day out. I would strategize on new ways to engage kids in their relationship with food, Keith would assess new markets for our services and roll our program out, and Ryan would spend his days focusing on building IT systems that better support our customers and the company’s daily work. We would leave the rest to everyone else. Until that day comes, what keeps us going is the fact that we all love our jobs, we’re used to wearing many hats, and we have a fairly high threshold for pain.

As I think back on our story, I almost wonder how in the heck we survived with so little experience in the industry and with a business plan that, quite frankly, was fundamentally flawed in so many ways. A smarter person than I might have foreseen all of these shortcomings on paper and pulled the plug on the idea before it even got off the ground. And that would have been a tragic mistake. Don’t misunderstand me on this point—business plans have value in helping you work through your ideas in the concept stage and keeping you on track toward your goals once you’re up and going. But while a business plan may win you a competition, it’s not going to run your business for you, and it certainly won’t be the final determining factor in your success. That, ladies and gentlemen, is up to you.

—Edited by Stacy Perman

[via: BusinessWeek]

Things were going so well for Ron Grover in his piece about MGM’s slow plunge toward insolvency. There was the news that the studio’s creditors declined an equity stake in the company as part of its restructuring, and then, once again, there were those mind-blowing figures we’re so used to reading in any discussion of MGM’s flagging fortunes: $3.7 billion in debt, with the creditors balking at another $1.2 billion in new debt to help get the studio’s production slate going. Instead, they want a buyer — and they’re not above selling the Lion for parts, including The Hobbit, the vast film library and the James Bond franchise. Which is where it gets a little tricky.

According to Grover’s report, recently installed studio CEO Stephen Cooper expressed doubt that he could “get more than $1.5 billion for the studio, which is roughly what MGM’s rights to the James Bond franchise alone might be worth.” That stat isn’t attributed to any specific valuation data or comparables, but let’s just say the number, like its source, is probably high.

Not that you can’t appreciate a little modest inflation in the press to help get the bidding started behind the scenes. Still: $1.5 billion? The last five Bond films grossed a combined $2.3 billion globally, which sounds great until you realize it took 11 years to generate it and MGM only keeps roughly half of it. Add on maybe another $50-$80 million annually going forward based on when a new DVD is released (and whatever other reissues you’ve got), and you’re still waiting almost a generation to turn a actual profit — by which time you’ve recast the role at least twice, and who knows if a 60-year-old franchise can even work. Nothing’s come close. Of course, this all would also imply that the studio — which was valued at $5 billion in 2004 — has lost all of its value outside the Bond franchise, which seems like more than a stretch for an institution with more than 4,000 movies sitting in its vault.

So what’s Bond really worth? Who knows? $500 million? $600 million? As suggested last week with another high-gloss Hollywood franchise on the block, throw it on eBay and find out. Anything that preserves MGM’s magnificent Hot Tub Time Machine for a timely January release is worth it.

[via: http://www.movieline.com/2009/11/hilarious-exaggeration-of-the-day-the-james-bond-franchise-is-worth-15-billion.php#mce_temp_url#]

Rick Metcalf grew up skiing Mount Waterman, an 8,000-foot-high mountain about 45 miles northeast of Los Angeles. Opened in 1942, Mount Waterman eventually ran into trouble and closed in 2002. When Metcalf, a San Diego mortgage broker, learned the resort was up for grabs, he purchased it in 2006, then spent $1 million on renovations over the next 18 months to repair and upgrade the mountain’s three chairlifts and its lodge. Waterman reopened in February 2008, but now, after two seasons, Metcalf has decided the mountain needs an owner willing to make additional improvements.

Last year, the first full season under Metcalf’s control, the mountain operated only on weekends, a total of 23 days, attracting an average of 125 customers per day and pulling in about $143,000 in ticket sales and concessions. This summer, the chairlifts also opened for hikers and mountain bikers. Day passes cost $10 for hikers and $25 for bikers.

With a vertical drop of more than 1,000 feet, the mountain has 27 trails with terrain ranging from beginner to expert. The mountain has three double chairlifts and a 2,200-square-foot lodge that includes a snack-bar-style restaurant with a bar and fireplace. A ski rental shop is housed in an adjoining building. Metcalf has mixed emotions about selling. “It’s not a real difficult business model to operate,” he says. “But it’s definitely not a get-rich kind of thing.”

PRICE RATIONALE: The price is based on improvements plus potential for growth. Ski facilities historically sell for six to 10 times EBITDA (earnings before interest, taxes, depreciation, and amortization), says Michael Berry, president of the National Ski Areas Association. That makes Mount Waterman’s price, at 18 times operating profit, seem high.

THE PROS: Mount Waterman is about an hour’s drive from Los Angeles County and its 10 million people. Stepped-up marketing could attract many more skiers. The mountain can handle 1,500 skiers a day.

THE CONS: It would cost several million dollars to install snowmaking equipment, considered a must in today’s industry. The ski resort has yet to prove its potential, says Steve Rice, managing director at CNL, a real estate investment trust based in Orlando that owns 14 ski resorts.

THE BOTTOM LINE: Mount Waterman is a turnkey ski mountain at an affordable price. To tap its full potential, though, a new owner should be prepared to invest in snowmaking and marketing.

Inc. has no stake in the sale of the business featured. The magazine does not certify the accuracy of financial or other information provided by the seller. Inquiries should be directed to Robert Rodriguez at robertr@theveldgroup.com or 310-652-8353.

A 1.7 oz bottle will cost $50.50 while the set with after shave cost $68.50. Any one got a chance to smell it yet?

Ciroc and Ketel One are pricier alternatives to Diageo’s Smirnoff. Ciroc volume sales climbed to 400,000 cases in the year ended June 30 from 60,000 cases in first half of 2007, the year that Diageo teamed up with Sean Combs. Diddy’s fellow rappers Snoop Dogg, Dr. Dre and Jay-Z all have endorsement deals with liquor brands in the U.S., while Combs is “a true partner” and receives half the brand’s profits, Strachan said.

Diageo’s Ciroc vodka, an equal-share venture with Combs, is set to release coconut and red-berry varieties in the U.S., Marc Strachan, the brand’s marketing director, said at an Oct. 28 presentation in Schiedam, Netherlands. Ketel One, the local vodka maker in which Diageo bought a 50 percent stake for $900 million last year, plans to enter 15 new markets including Brazil and Australia by the end of June, said Bob Nolet, vice president of the Nolet Distillery, where it’s made.

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Donny Deutsch shows us how to get the “Power Psyche” in the business world.

Cameron Johnson talks about how he was able to build businesses through his childhood.

Despite the economic gloom and doom, the honorees on this year’s 30 Under 30 list are building wildly successful ventures with the help of their peers, parents, professors, and patrons.

Recession? What recession? You’d think the events of the past year would have curbed Generation Y’s enthusiasm for the always-uncertain entrepreneurial life, but you’d never know it by looking at this year’s 30 Under 30 list. It’s a dynamic group of self-starters that has managed to raise money, launch new products, build new technologies, and tap into underserved markets. And they’ve done it with relentless enthusiasm and resiliency.

But they haven’t done it alone. Take at look at our list, and one of the first things you’ll notice is an astounding number of partners (Getting By with a Little Help from Their Friends). They’re starting companies with college pals (Thrillist, Apture, Foodzie, and Smathers & Branson), spouses (ModCloth), or siblings (DANNIJO,M3 Girl Designs), and that should probably come as no surprise since GenY is typically characterized as a very social generation — they are, by and large, comfortable with teamwork and collaboration.

Dig a little beneath the surface, however, and you’ll find that their tendency to start companies with partners is just the most obvious and visible element of this generation’s entrepreneurial zeitgeist. First and foremost, they are tribe-builders. By that, we mean that they seem to have an innate talent, and an almost compulsive desire, to draw others into their entrepreneurial orbits and to continually extract from them wisdom and advice. Parents, professors, mentors, investors, and complete strangers are all invested in the success of these companies. No arm-twisting required. After all, who doesn’t want even the tiniest role in an entrepreneurial success story?

For many young entrepreneurs, the tribe of support begins forming very close to home. Their baby boomer parents — increasingly disillusioned with corporate life, yet eager to help launch their children on paths to success — are probably more supportive of entrepreneurial dreams than any other generation of parents in modern times. WhenMaddie Bradshaw, the 13-year-old founder of M3 Girl Designs, came up with the idea to make and sell hand-painted bottle-cap necklaces, her mom gave her the thumbs up to spend $300 of birthday and tooth fairy money to start the venture. M3 is now a $1.6 million company with products in hundreds of stores. The three “M”s in the company name stand for Mom (the adult signature on all the corporate documents), Maddie (founder, president, and head designer), and nine-year old Margot, (vice president and assistant designer).

Then there’s Jamail Larkins, whose parents encouraged his love of aviation but insisted he help finance his passion for flying. So Larkins, who flew solo in Canada at age 14, sold aviation training books and videos to earn money for lessons. Now, in addition to being a skilled acrobatic pilot, he’s the CEO of Ascension Aircraft, a nearly $6 million firm that sells and leases airplanes. At 25 years old.

While we’re noticing an increasing number of young entrepreneurs who moved beyond the lemonade stand at shockingly young ages, like Bradshaw and Larkins, college still seems to be the incubator of choice for a good many GenY business owners. And why not? There’s no better place to build a tribe. John Goscha, Jeff Avalon, and Morgan Newman cut their entrepreneurial teeth as freshman living in Babson College’s E-Tower dorm for entrepreneurs, where idea generation apparently beats beer pong as a favored extracurricular activity. For the three friends, the very process of brainstorming led to a pretty good idea: frustrated with the limited space on whiteboards and with chore of tacking giant pieces of paper to the wall, they inventedIdeaPaint, which turns any paintable surface into a dry-erase board. The three even signed on two Babson professors as investors.

Meanwhile, Stanford grad-school classmates Tristan Harris, Can Sar, and Jesse Youngtapped into the university’s John S. Knight Fellowship for Professional Journalists for advice on a technology tool they were developing for publishers and bloggers. Based on feedback from the journalists on the kinds of Web-based features they’d most appreciate, the three developed Apture, a plug-in that allows readers to view multimedia links without leaving a website. One of the Knight Fellows introduced the Apture team to an executive editor at The Washington Post, and the paper ultimately became a customer.

At Bowdoin, roommates Peter Smathers and Austin Branson were so smitten with the needlepoint belts made by their girlfriends, that they decided to start a business selling them. Not knowing quite where to start, they drew on the Maine college’s resources by pitching a joint independent study project to both the art and economics departments. It was accepted, and the two got a crash course in both design and business planning. Their needlepoint belts and accessories, made by more than 1,500 independent contractors in 16 Vietnamese villages, now generate $2.5 million in revenue.

For all of these entrepreneurs, college campuses provided invaluable free resources in a safe, supportive atmosphere.Eric Koger, who founded ModCloth with his wife, Susan Gregg Koger, sums it up nicely. “Carnegie Mellon gave [us time] to hone our respective skills in preparation for jumping into ModCloth full-time,” he says. “We were able to work on ModCloth and get feedback from professors and classmates, during a time when we didn’t have to worry about ‘paying the bills,’ since we got our basic cost of living from student loans and help from family. It was a critical development period for us.” All start-up entrepreneurs should be so lucky, right?

The most important tribe any entrepreneur can cultivate is, of course, his or her community of customers. And the honorees on this year’s list are particularly savvy at just that. Foodzie founders Emily Olson, Nik Bauman, andRob LaFave created an Etsy-like online marketplace where “foodies” could find gourmet and artisanal treats, and where independent producers were able to reach a broader and more targeted group of consumers. The company is a graduate ofTechStars, a Boulder, Colorado-based incubator program that provides mentorship and a small amount of seed capital for start-ups. But Foodzie also landed another $1 million in funding after the program.

ModCloth, too, attracted funding largely because of its strong connection with its customer base. The website sells reasonably priced vintage-inspired and indie clothing and will likely increase sales from $3 million to $15 million this year, according to its husband-and-wife team. “They know their customer,” explains their investor Josh Kopelman of First Round Capital, “and have an intuitive sense of what products to offer and what messaging to use. They are passionate, scrappy, and persistent, yet seek advice and counsel.”

Thrillist, a subscription-based e-mail newsletter geared toward young men, has such a loyal following among its 1 million subscribers that the company expects to rack up between $5 and $10 million in revenue this year, largely from advertisers who desperately seek the coveted demographic, even as they pull ads from more traditional media amid a huge ad slump. Thrillist’s big differentiating factor: 14 local editions that segment its larger tribe of subscribers into smaller, regional markets, all the better for advertisers to target their messages.

Elliott Bisnow, the founder of Summit Series, can’t claim revenue like that yet — but his influence among the entrepreneurial tribe does appear to be growing. Summit Series is essentially a networking organization for prominent, young CEOs. Bisnow organizes retreats where they can discuss everything from business strategy to philanthropy. “We’re trying to create Davos for young entrepreneurs,” he says. Ambitious? Maybe. But last March, he got a little closer that goal. The White House, he was told, wanted him to assemble a group of 35 young entrepreneurs for a visit. The goal: to start a conversation between the Obama administration and a new generation of influential young CEOs.

Bisnow pulled it together in two weeks, assembling Tony Hsieh of Zappos, Aaron Patzer of Mint.com, Jessica Jackley of Kiva, Adam Lowery and Eric Ryan of Method, Jake Nickell of Threadless, Evan Williams of Twitter, and several others, to convene in D.C. While President Obama was not in attendance, a door to the White House was opened, e-mail addresses were exchanged, and a promise of open dialogue was made. Which makes us think that maybe the most influential tribe of all is the one we honor right here every year on the 30 Under 30 list.