The Pareto Principle Meets the Long Tail
Remember last week when I wrote that Steve Pressfield’s publishing company, Black Irish Books, had sold 85% of the number of THE WAR OF ARTs that his Big Six publisher had sold per year? A few people who read the piece thought I overstated the viability of book publishing as a long tail business.
The gist of their argument was that I was giving short shrift to the advantages of having bookstore placement for THE WAR OF ART and that the loss of 15% of sales in just one year was far more damaging to the long term success of the book than I realized. They admitted that…Yes, Steve was making multiples of profit more per unit publishing THE WAR OF ART by himself…for now.
But they argued that without a steady sales pitch to bookstores and other bricks and mortar retailers to replenish their stock, THE WAR OF ART will continue to lose traction year after year. Perhaps even at the same 15% per year degradation. Eventually the long tail business model that Steve and I use to support the sale of THE WAR OF ART will become such an outlier that Steve won’t be able to buy a cup of coffee with the profits.
Hmm. Maybe they’re right?
Maybe the fact that Steve and I haven’t approached one of the Big Six distribution arms to take over the publication of THE WAR OF ART and for all of Black Irish Books future offerings is a mistake. Maybe the fact that we’ve given up on the traditional independent publishing model is Pollyannaish.
Let me rethink this.
The traditional independent publishing model requires a new publisher to seek distribution to the wide trade. By courting the distribution arms of the Big Six or the other huge distribution operation owned by the Perseus group, the new publisher gets access to the largest possible marketplace. If an independent publisher has attractive books to offer that one of the distributors thinks will sell (we certainly do), they’ll give a little guy a chance.
Traditionally, distribution is the HUGE make or break barrier of entry to the book publishing market.
A distributor handles a myriad of functions for the little guy…soliciting orders for books before they are published, warehousing the books once they are published, shipping and handling, the accounting (a lot of it), the back office, customer service etc. In exchange for handling all of these headaches, the distributor takes a cut of the net and/or gross dollar volume of the independent publisher. The amount of cut is negotiable, but it’s a major expense no matter how you slice it.
These distribution companies are very good at what they do and they’ve shaved down their fees over the years. They’ve gotten better and more efficient. Because they’re competing for a limited pool of successful independent publishing operations, they’ve passed along some of the savings to their clients. They are pros.
For those of you want a more in depth analysis of the traditional independent publisher business model read Tucker Max’s very compelling piece from yesterday’s HUFFINGTON POST. Steve and I had a whirlwind meeting with Tucker a while back. He’s cultivated a sort of bad guy/wisenheimer (I know my expressions are right out of Mayberry RFD) reputation over the years that masks his true self along with a considerable intelligence. Trust me, this guy knows the business as well as anyone I’ve met and he generously shares what he’s learned with anyone who asks.
So if a big distributor can get THE WAR OF ART back into bookstores, why aren’t we knocking down doors? I know Steve doesn’t like the fact that Black Irish Books aren’t represented in the usual outlets—Barnes & Noble, Costco, Wal-Mart, or the little shop around the corner. He’s a writer. He wants people to be able to go in a bookstore and find his work. Totally understandable.
So why isn’t he insisting that I get off my duff and nail down a deal?
It has to do with The Pareto Principle, more popularly known as the 80/20 rule. There are many interpretations of the law of 80/20, check out Richard Koch’s seminal book. And Tim Ferriss also dug deep into takeaway lessons from 80/20 in his big bestseller, The Four Hour Work Week.
I learned about The Pareto Principle the hard way…
When I was in my twenties and thirties, grizzled vets (like I am now) used to tell me that the best entrepreneurial advice they could give me was to partner with someone who had blood on her resume. Someone who had at least one unsustainable business venture blow up in her past.
The one caveat they had was that the failure had to be in the same arena as the new company I wanted to start. That is, if I wanted to open up an ice cream cart, working with someone who didn’t get a ball peen hammer manufacturing plant off the ground wouldn’t be my best choice as partner.
The ball peen expert would be better than someone without entrepreneurial experience dealing with the demands of employees, governments, suppliers, wholesalers, salespeople, retailers, manufacturers etc., but he probably wouldn’t have the faintest idea of how to create a singular ice cream taste sensation. If you want to have the best chance to make your ice cream cart the most profitable on the block, find someone who can make great ice cream too. But with some hard earned business lessons learned under her belt.
Steve and I worked together when I ran a traditional independent publishing company back when the barriers to entry were formidable…before the emergence of successful long tail businesses. We published THE WAR OF ART in hardcover at my company Rugged Land Books. Rugged Land did not become what I hoped it would be.
It (gulp) failed.
But it did not fail because of the quality or appeal of the books. We had 7 New York Times bestsellers in only a little over four years of active publishing, a fact I still have a hard time believing. Considering we were intent on competing with the Big Six, the fact we broke through even once is pretty incredible. As Steve can attest, I could spend hours telling you exactly why Rugged Land didn’t work.
But if I had to boil it down to one thing, I would tell you it was because we had to use physical bookstores, price clubs, and other brick and mortar retailers as our primary source of income… 80% of our revenue came from 20% of our customers. What’s even crazier is that these were customers that we could not even talk to—Barnes & Noble, Borders, and the price clubs.
And most devastatingly, these 20% could return our books for a full refund if they didn’t sell them. Why did we agree to this? Because we had to. It was just the way things were done. They still are done this way, by the way.
The return policy makes sense if a publisher is trying to break out an unknown commodity as the next big thing. In order to get a critical mass of copies in front of consumers, the publisher agrees to refund unsold books. The publisher is gambling that they are right and that the new big thing will set the world on fire. The retailer, who hears this all of the time, agrees to give the book a shot, but only if they get the return hedge.
Begging for a retailer to order a massive quantity of books that will most likely sit in their warehouse only to be returned for full credit is lunacy. I know. I used to do it.
But returns don’t make sense for the two other kinds of books—proven bestselling fiction writers and backlist books. Bestselling writers sell about the same number of copies of their work book after book…no matter the promotional push. They are as good of a lock as you can get in publishing…this is why everyone wants one. Returns for the big bestselling writers are in no way as large as first novels or up and comers.
But returns for backlist books are even lower than Bart Bestseller’s latest. Backlist books, as I think I’ve explained before, are titles like THE WAR OF ART…evergreen sensations driven by actual word of mouth from actual readers. These devotees buy multiple copies and give them to friends. This is how we met Tucker Max…he buys THE WAR OF ART, and now TURNING PRO, by the box load.
Bookstores don’t carry a lot of backlist. In fact, when Steve was published in paperback by a big publisher, more often than not (9 out of 10 times, more like 99 out of 100) when Steve went into a store to see if they carried THE WAR OF ART…the answer was no. That doesn’t mean that they didn’t special order it for a customer who asked for it by name. It just means that a backlist book like THE WAR OF ART does not have any presence in a brick and mortar bookstore today nor did it ever really have a presence yesterday.
So with my experience at Rugged Land, as well as years at the Big Six as an editor, I explained all of the above to Steve. I told him that the reason we shouldn’t rush out and sign a deal with a big distributor is that we don’t publish Big Six kinds of books.
What would inevitably happen if we did go out and sign up a distribution deal is that Black Irish Books would have to begin spending way too much time servicing a tiny segment of our market—brick and mortar bookstores.
All of the time Steve and I would spend preparing sales tip sheets and sales conference presentations and putting together excerpts of our books for sales reps that we’d never meet who would comment about our choices for our covers and then we’d decide to change our covers because a buyer at Barnes & Noble didn’t like them, and on and on and on could be spent writing things like this.
We love writing columns for WRITING WEDNESDAYS and WHAT IT TAKES and cooking up book ideas that we can pressure our friends to create and doing fun videos to mix things up.
So instead of spending 85% of our time servicing 15% of our market (the loss to date of gross sales units for THE WAR OF ART by not using a distribution partner into bookstores), we decided to spend 100% of our time serving 100% of our market—you guys.
Will Black Irish Books have 7 New York Times Bestsellers in four years? No way. But I’d bet the house that Black Irish Books will be actively publishing far longer and with far less agita.
Steve and I know how to make great ice cream and we’ll park our little cart at the intersection of Amazon.com and Random House/Penguin come rain or shine. This is what THE LONG TAIL is all about. Fun and variety.
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