According to Olmsted’s design, different kinds of trees – deciduous vs. coniferous, elms vs. oaks –were to be planted in groups with big spaces in the middle. Think of these groupings as separate rooms with the trees serving as the walls.  Olmsted also called for gaps in the plantings. Think of these gaps as doorways.

Walking through Highland Park, you feel this inexorable pull: What’s on the other side of that gap in the trees? So you walk through a “doorway” and find yourself in a new “room” surrounded by a new kind of tree – and with still more doorways leading into still other rooms. It’s like exploring a house.

My wife grew up near Highland Park and spent hours playing there. Of course, as a little girl she didn’t care a whit about fusty old Frederick Law Olmsted. Still, his design subtlety pulled her through the park scape. You don’t have to have heard of Olmsted or his “passages of scenery” concept, yet it works on you just the same – and therein lies the man’s brilliance.

Also visited Genesee Valley Park and Seneca Park, two other Olmsted designs in Rochester. Thanks to Tim O’Connell, a local historian, for a great tour and a great day.

ARLINGTON, TEX. (Fortune Small Business) — Want to plunge into the modern American melting pot? Try the offices of Social Smoke, a hookah manufacturer in Arlington, Texas. Here a silk Persian rug and a piece of Arabic calligraphy, The 99 Names of Allah, share wall space with a signed photo of a Willie Nelson impersonator. There’s a Chinese green tea set in the conference room, and Mom’s homemade enchiladas are chilling in the fridge. Abrahim Nadimi, director of sales and marketing, is tapping a bobblehead doll of Dwight from the TV show The Office. “Welcome to the 21st century,” he says. No kidding.

Social Smoke is growing gangbusters, and its success says a lot about the new international, cross-cultural landscape of American small business. It is run by Abrahim’s father, Sayyid Nadimi, 51, who emigrated from Iran before the 1979 revolution, and his U.S.-born sons.The Nadimis are tapping into America’s deepening love affair with an ancient Middle Eastern tradition: hookah smoking. The company makes “authentic” Iranian and Egyptian hookahs in China, having tried and mostly failed to source them in the Middle East. Yet Sayyid is anxiously watching developments in Iran — and praying the U.S. government will soon let him sell his product back to his homeland.

Social Smoke is one of the largest and fastest-growing suppliers in the international hookah market. There is no trade group to track sales in the industry as a whole, but individual companies are reporting brisk growth. The first quarter of 2009 was Social Smoke’s best ever, with sales rising 28% from the same period a year earlier. Sayyid won’t disclose revenues but says the company is profitable. The family firm employs 11 people and sells in 15 countries.

Hookah business smokin’

Though Social Smoke sells hookahs and shisha (tobacco for use in water pipes) to consumers online, 90% of sales come from supplying wholesalers and hookah lounges. At a time when cigarette sales are in steep decline (20% of U.S. adults now smoke, the lowest percentage since the Centers for Disease Control started keeping statistics in 1965), hookah lounges are booming. There are now more than 400 in the U.S., up 400% since 1999, says Piergiorgio Maselli, who maintains a directory on his site HookahCrazy.com.

Several factors account for the hookah boom. The smoking bans that municipalities nationwide have imposed in the past decade affected restaurants and bars but not establishments dedicated exclusively to tobacco use. Unlike cigarette smoking, which has turned into something of a furtive activity, hookahs are inherently communal. Customers can get into a hookah lounge at age 18, three years before they are allowed in a bar in most states. (The largest number of new lounges are found in midwestern college towns such as Lawrence, Kans. and Madison, Wis.) And most important, hookah lounges are a very attractive business model.

Just ask Yis Tigay, 28, owner of the Shouk Lounge in Philadelphia and a Social Smoke customer. Patrons stay twice as long in the hookah bar as they do in the three conventional diners his family owns, he says. Everything about his establishment — the languid music, the dim lighting, the divans — is designed to impart an unhurried vibe. A table of four puffing at a leisurely pace consumes roughly $16 worth of shisha an hour, Tigay says — plus the food and drink frequently ordered. The cost of that shisha to him: $2. “It’s like putting a chain around people’s ankles,” he says. “They tend to stick around.”

There’s scant research on the health effects of hookah smoking. It tends to be a sporadic, ceremonial activity, and many people don’t inhale. Nevertheless, health experts warn that even such limited exposure to nicotine can spark addiction. “I worry because hookah use is so prevalent among young people,” says Donna Vallone, senior vice president of research and evaluation at the American Legacy Foundation, an anti-tobacco group based in Washington, D.C. “What starts out as innocent experimentation could become a lifelong struggle to quit.”

Social Smoke’s response? “Everyone knows smoking is bad for you,” says Abrahim, 30. “The alcohol and food served in a hookah lounge also have the potential to be dangerous. Moderation is the key, and a hookah by its very nature is a device that promotes moderation. You can’t get all fidgety, reach into your pocket and pull out a hookah.”

Social connections

Abrahim’s younger brother Ali, now 27, founded Social Smoke in 2003 while a student at the University of Texas at Arlington. As an observant Muslim, Ali does not drink alcohol, so he started taking a hookah to campus parties as a kind of social prop. “People asked a lot of questions,” says Ali, speaking in a curious blend of Tex-Mex twang and Farsi lilt. “Everyone wanted to try it. Then everyone wanted one.” Ali says he didn’t encounter any racist misconceptions about the device. Perhaps, he mused, there was money in hookahs.

Ali built a Web site for Social Smoke, bankrolled by his credit card. He bought $3,000 worth of hookahs from a U.S. distributor, Hookah Brothers of Los Angeles. At first he sold most wares at cost, hoping to establish himself in the market. But the business took off quickly. Within two months he was renting warehouse space and selling roughly $5,000 worth of hookahs a month, but still at cost. He was also supplying hookah lounges with shisha in exotic flavors such as citrus, cappuccino and strawberry margarita. Margins on shisha are thin, but the volume is high — tobacco has to be constantly replaced. It proved to be a modest profit center.

In 2004, Hookah Brothers went out of business. So Ali decided to forge direct trade ties with the Middle East. He figured he needed to buy direct if he was ever going to turn a profit and ordered $1,000 worth of hookahs from an Egyptian supplier. But they arrived weeks late and were poorly made. Stems didn’t fit into bases. Some units leaned; others were broken. Almost none were sellable. The supplier refused to return Ali’s money, saying the goods must have rattled around too much because Ali’s order was too small. He then had the gall to ask Ali to place a second, larger order.

The Nadimis united to save Ali’s business. At the time, Sayyid and Abrahim both worked as engineers at Bell Helicopter, one of the area’s largest employers. In 2005 father and son both quit their solid jobs for the wild ride of the international hookah trade. Sayyid now serves as CEO of Social Smoke. The matriarch of the clan — Iman Enciso (born Martha Alicia Enciso Barba in Guadalajara, Mexico) — became office manager. The youngest son, Mohammad, 18, runs the warehouse.

Sayyid decided to make some exploratory trips to Egypt and Jordan. Because of U.S. trade sanctions against Iran, he had to skip his homeland. “From time to time I return to Iran to visit family,” he says. “I’d like to go back as a businessman.”

Building a supply chain

After 30 years in the U.S. and a decade at Bell Helicopter, Sayyid had grown used to the breakneck pace of American business. He was amazed to find that Arab business dealings required three full days of social preliminaries before actual negotiations could begin. “They might take you sightseeing or invite you to their home and prepare six different kinds of food,” he says. “But it doesn’t mean anything. It’s all cosmetic. After days of this, you finally get down to business and argue over a $1-per-unit price difference.”

Misunderstandings were legion. One Egyptian prospect put Sayyid up in a hotel for a night. When Sayyid offered to pay him back, the man took offense. The language barrier made matters worse. (Sayyid is fluent in Farsi but speaks Arabic poorly.) On a drive through Cairo, Sayyid tried to patch things up with his host, who promptly pulled over to the side of the highway and berated him for 20 minutes.

Sayyid persevered and managed to sign up four hookah makers in Egypt and Jordan. Most Arab manufacturers required down payments of up to 40%. The balance was due — wired directly into the manufacturer’s bank account — when production was complete but before shipping. “There’s always a point when the other party has all your money and also all your products,” Sayyid says.

Worse, damaged goods appeared to be the norm. After much searching, he tapped a reputable Jordanian manufacturer who presented an array of attractive, well-made hookahs. Social Smoke placed a $70,000 order. But when they arrived, glass and ceramic parts were cracked, metal was rusted, and the stems were too long. The company is still trying to recover its money, but its entreaties have slowed to a trickle. The Nadimis were forced to combine undamaged parts — a stem here, a bowl there. Overall, only 80% of the hookahs that Social Smoke ordered in the Middle East were usable.

A new source

Like many American businessmen before him, Sayyid started researching Chinese factories online and teaching himself Mandarin. (He says he is now fluent in English, Farsi and Spanish and pretty good in Mandarin.) Visiting factories in Qingdao and Shanghai, he was impressed by Chinese standards of customer service. Unlike a past Egyptian supplier, who could communicate only by Arabic snail mail, the Chinese vendors all spoke some English and communicated promptly by e-mail.

Making hookahs in 10 Chinese factories is a far cry from having them handcrafted by Middle Eastern artisans. The job of manufacturing metal pieces such as stems went to a fabricator with experience making latches and doorknobs. A flowerpot factory produces ceramic bowls for the hookahs. But Sayyid can now have his hookahs built to spec. Social Smoke has been able to add shapes like cones and cylinders to its product line. It also festoons hookahs with intricate art, such as images of cobras and Anubis, a jackal-headed god of ancient Egypt.

Despite all that Chinese manufacturing expertise, Social Smoke has persisted in importing some hookahs from Egypt. This is key for selling to hookah bars in such Arab-American centers as Dearborn, Mich., which prize Egyptian hookahs, irregularities and all. Sayyid now has a point person in Cairo who sources hookah components separately — and packs them with care. “Communication isn’t great, and shipments still arrive late,” says Abrahim. “But this supplier is honest. That’s a big deal.”

Still, 75% of Social Smoke’s hookahs now come from China. Sayyid spends about a third of each year in the country and owns a condo in Guangzhou. “I feel like I’ve created the modern equivalent of the Silk Road, which once connected China and Persia,” he says.

And as Silk Road traders knew, supply can be fickle. In the three years since Social Smoke started doing business in China, the cost of making hookahs has gone up about 60% — and is now on par with Egyptian prices. Sayyid says he’s thinking about manufacturing in Vietnam or Latin America.

Finally, of course, there’s the Iranian market, where Sayyid is convinced his U.S.-brand hookahs would have cachet. Earlier this year, before that country’s contentious presidential election and the protests that followed, Sayyid contacted the U.S. Commerce Department to ask about the permits necessary to export to Iran. Filling out the forms, he was told, would be a waste of time.

That may soon change. Sayyid is heartened by the protests and demands for fair elections. He’s thrilled by the softer tone that President Obama has adopted toward the country. Discussing the possibility of setting up shop in Tehran, Sayyid and sons break into big grins. “That,” Sayyid says, “would be like coming full circle.”

Originally, Buffalo’s city elders wanted a single large park, like New York’s Central Park. Instead, Olmsted & Vaux suggested a park system, a group of interrelated parks each with separate uses. Delaware Park –the gem of the Buffalo system – was to be a place for quiet contemplation. Parade Park – rechristened Martin Luther King Jr. Park – was the place for, well, noisy parades.

To connect their Buffalo parks, Olmsted & Vaux came up with another brilliant innovation. They laid out a series of wide boulevards and planted them thickly with trees. This made it possible to move between parks in the system, but still maintain a green-space ambience while traveling. And what did Olmsted and Vaux call these boulevards? “They coined the term parkway,” explained Dr. Francis Kowsky, guide for my park tour, and author of an acclaimed biography of Calvert Vaux.

During my visit, it became clear that the separate use of the parks within the system no longer holds. One isn’t used for parades, while another is used for contemplation. Still, the fact that Olmsted and Vaux designed five separate parks means that diverse Buffalo neighborhoods are accessible to nicely landscaped green spaces. The only park that has really suffered with the passage of time is Front Park, situated on Niagara River. It’s been carved up by a gaggle of feeder ramps for the Peace Bridge that crosses to Canada.

The parkways that connect the parks are still incredible, too. Of course, they’ve been repaved to accommodate car rather than carriage traffic. Following Lincoln Parkway onto Chapin Parkway, under a canopy of trees the whole way, and down a now-paved old bridal path and right into Delaware Park – what an experience! Buffalo has a rep as a hard-luck rust-belt town, but I saw a whole other side.

Do you recognize this metal man? Elektro was one of the world’s first robots, seen by 3.7 million people at the 1939 World’s Fair. The curious lined up for hours to watch a performance in which he walked, talked, and smoked cigarettes. “Elektro was the marvel of his age,” says Andy Masich, president of the Heinz History Center in Pittsburgh, which just unveiled a replica of the robot as part of its permanent collection.

Elektro was originally built by Westinghouse, then the world leader in robotics thanks to its Televox unit which—with a twist on telephone technology—could convert a person’s voice into electronic pulses. By speaking into a telephone handset, it was possible to trigger any of Elektro’s 12 motors, thereby controlling him. A five-syllable command (Elektro, come here) prompted him to walk; one syllable (stop!), and he halted. Elektro’s speech drew from a small repertoire of sayings recorded on 78-rpm records. Still, to dazzled audiences Elektro appeared to possess near-human communication skills.

Following the fair, Elektro hit the road to promote Westinghouse dishwashers and fridges. The company envisioned Elektro as the ultimate appliance, a domestic helper. “If you treat me right, I will be your slave” was one of his canned 78-rpm messages. But the clumsy giant robot never made his way into the home. Fact is, at 7-feet-tall, Elektro was simply too unwieldy for most houses, let alone household chores, says Jeffrey Trinkle, a roboticist at Rensellaer Polytechnic Institute. “Smoking was a great party trick, but practical robotics [like factory arms in manufacturing plants] carried the day.”

After World War II, Elektro entered a period of decline. He did a stint promoting a California amusement park and appeared in the 1960 B-movie Sex Kittens Go to College opposite Mamie Van Doren. Then it was off to a Westinghouse plant in Mansfield, Ohio, where his head was removed and given to a company engineer as a retirement gift.

What is left of the original—the partly-functioning head and body—now resides at the Mansfield Memorial Museum. “He’s a piece of history,” says Scott Schaut, the museum’s curator.  “He’s not going anywhere.”

An entrepreneur lures aspiring miners to an old gold-rush town.

HAPPY CAMP, CALIF. (Fortune Small Business) — The northern California town of Happy Camp (pop. 1,000) was founded in 1850 when an estimated 15,000 people converged here, pitching tents and building rickety lean-tos. They came to work on a nearby stretch of the Klamath River dubbed the Million Dollar Mile because, legend has it, that was the value of the gold extracted on an average day.

While not every prospector struck it rich, Happy Camp earned its name from the variety of diversions available to both failed and successful miners: gambling, hookers, whiskey, and opium. What happened in Happy Camp stayed in Happy Camp.

Today the town features zero stoplights, only a few businesses (Bigfoot 24-Hour Towing is one), and a handful of houses, mostly hidden among the pines. I’m here to attend a beginner’s prospecting weekend, led by an enterprising former Navy SEAL named Dave McCracken.

I check into the Forest Lodge Motel on Friday evening. Early the next morning I present myself at the Lions Hall, the only room in town large enough for McCracken’s opening seminar on prospecting techniques. The roughly 100 attendees hail from as far away as Hawaii and Virginia. Among them are entrepreneurs, a railroad engineer, a computer programmer, several retirees, and a contingent of career gold diggers, mostly locals, some of whom work for one or more of McCracken’s prospecting enterprises.

The day after Christmas 1979, following a four-year tour of duty, McCracken succumbed to the gold bug. Along with two partners, he headed for the Klamath River in Northern California. The partners lasted just two months. McCracken stayed on, living in a tent for the next three years. On his best days he recovered a few pennyweights of gold (worth roughly $100 back then). For a while he subsisted on an annual income of less than $3,000 – and lots of beans. Over time he won the trust of some old-timers who still worked the region. They taught him their tricks.

Now 54, McCracken has built a Happy Camp mini-empire. He owns the town’s prospecting store, where shoppers can purchase anything from a tiny gold-display vial (50 cents) to a big, unwieldy piece of prospecting equipment called a dredge ($4,550).

He is the author of five books on prospecting and has produced three DVDs. He has also staked mineral claims along 70 miles of the Klamath. McCracken pays annual fees of about $50,000 to the U.S. Forest Service to maintain those rights. His stakes enable his biggest moneymaker, a prospecting club called the New 49′ers. For a one-time, $3,500 fee, members can prospect on McCracken’s claims, keeping any gold they find. He launched the New 49′ers in 1985 with 500 members and says he now has more than 2,000.

McCracken explains what we can expect during our prospecting initiation. After panning to find promising locations for gold, we’ll return to work them hard. The weekend will culminate in a split of the gold among all 100 participants. He stresses that although everyone will find some gold, it’s unlikely that anyone will find much. Still, McCracken has a tough time containing himself.

“Hardly anything compares to finding your first gold,” he says. “Even if it’s just a tiny fleck – it’s pure euphoria.”



Sifting sediment

At noon on Saturday our group heads over to Savage Rapids, on the Klamath River. The plan is to work a gravel bar in the flat plain between the water and the woods. It’s considered an ideal panning location because the river often deposits gold here when it overflows its banks.

Gold panning involves two steps, one land-based and the other water-based. McCracken demonstrates the technique, which hasn’t changed since 1849: Using a spade, he flicks away the top layer of gravel, then digs into the rich, wet silt underneath, filling his pan. He walks to the river’s edge and dips his pan in the water. Moving it around, he separates out liquid and lighter bits of sediment. After about five minutes he holds out his pan for us to inspect. There’s some water, a lot of iron-laden black sand, and a few tiny flecks of gold.

Panning proves a lot harder than McCracken makes it look. Squatting in the chilly Klamath, the pan heavy with dirt and water, I struggle to keep my balance. After 20 minutes of sloshing, I reach the bottom of the pan. To my amazement, I see two minute, glittering specks.

Saturday night we return to the Lions Hall for a potluck dinner of beef stew, corn bread, and potato salad. Country music twangs over the speakers. As the evening draws on, both visitors and locals relax. One after another, the seasoned prospectors reach into their dungaree pockets and show their treasures, special nuggets that they carry in grubby envelopes and little glassine bags. Each lump tells a story. Some are prized for their unusual shape, others for weight and purity.

On Sunday morning I return to the Klamath, where McCracken and his crew are setting up four gas-powered machines, known as high-bankers, in the most promising spots from the day before. These robotic gold pans process dirt much faster than humans can. Drawing river water through a long hose, the high-banker sorts and agitates, spitting out the lighter sediments. At the base of the machine, the heavy stuff (gold, black sand, bits of lead) comes to rest in a removable tray. This weighty yield is then run through a mechanism that separates gold from other heavy material. 



Nuggets and flakes

My job is to dig with a shovel and fill buckets with dirt. Other prospectors haul the buckets and dump the contents into the high-bankers to be filtered. We work in the grueling heat from 10 A.M. to noon, when McCracken announces we have processed enough soil. With much ceremony he withdraws the trays from the high-bankers. I can see numerous metallic glints, many of them golden. The next step is to run this yield through another machine that washes away the dross and leaves the gold.

Back at the Lions Hall, the entire day’s take is spread out on a single piece of letter-sized paper. McCracken passes a magnet over the sheet. It attracts iron-rich black sand, leaving behind the nonmagnetic gold.

He then pours the precious metal onto a scale. The room falls silent in anticipation. McCracken fiddles with the slider weights and then announces, “We got an ounce and a half of gold – not bad for two days’ work.” Our haul includes 13 small nuggets among the flakes and flecks. We draw numbered poker chips from a can. The first 13 people will get a nugget. I draw No. 86.

As I line up to claim my small share of gold dust, I run into fellow prospector Linda Wilkinson. Along with her husband, Wilkinson owns Jump Organics, a soap manufacturer in Albany, Ore. She examines her little vial, agitating some $13.50 in glittering flakes. “I won’t be retiring on this, but I had a blast,” she says, grinning. 

Forget NASA. The real future of America’s space program may well lie in a thriving desert town of entrepreneurs who aim at the stars.

MOJAVE, CALIF. (Fortune Small Business) — Outside Hangar 7, the desert and sky stretch as far as you can see, broken only by the distant Tehachapi Mountains and the occasional Joshua tree.

Inside the hangar the view is equally dramatic. A rocket, 30 feet long, lies on its side. Nearby sits a large capsule, looking like something out of the Apollo program. But this is the Neptune program – run not by NASA but by Roderick and Randa Milliron, a husband-and-wife rocketry company.

The Neptune sure looks convincing. But will it fly?

Welcome to Mojave, Calif., where “Will it fly?” is a constant question. The desert town is home to eight small rocket companies, twice the number of a decade ago. The town now boasts 4,000 residents, up from 2,700 five years ago, pursuing a galaxy of ambitious business models: space tourism, rocket-powered sports, and space-based experiments for corporations and scientists. Like any good business ecosystem, Mojave also has a growing cluster of companies that support the rocket firms: fabricators of exotic materials, parts suppliers, and even restaurants that cater to the space set.

Mojave can draw on a deep well of California aeronautics and engineering talent on the cheap. It is a 90-minute drive from Los Angeles, home to aerospace companies such as Lockheed Martin, and five hours from San Francisco. The pay at rocketry startups such as the Millirons’ can be as little as $16,500 a year. Yet these companies lure fresh hires with the promise of inspiring work and a bargain-basement cost of living.

On average a Mojave home goes for about $150,000, less than a third the average cost in L.A. Still, Mojave is clearly in the boonies. The town doesn’t even have a movie theater.

“Here it’s possible to test rockets in a very unpopulated area,” says Mike Massee, a board member of the local chamber of commerce. “If something blows up, you’re not going to take out an entire neighborhood.”

The space race

Another draw is Mojave’s 12,500-foot runway, longer than anything at Los Angeles International. During World War II, Mojave’s airport was used to train Marine pilots. After the war it became a private airfield favored by owners of vintage biplanes and decommissioned fighter jets. In 2004, Mojave’s airfield became the first inland facility to receive FAA approval for space traffic.

That same year saw the first small company reach space: Scaled Composites, then owned by Mojave entrepreneur and airplane designer Burt Rutan. His revolutionary SpaceShipOne became the first private craft to ascend 62 miles to the edge of suborbital space, twice over two weeks.

That netted him the $10 million Ansari X Prize, but even larger purses awaited. Last August, Northrop Grumman purchased Scaled Composites for an undisclosed sum. And Richard Branson commissioned Rutan to design and build the first batch of rockets for a space tourism business, Virgin Galactic.

This summer Rutan began testing SpaceShipTwo, which is twice the size of the original, in the nearby desert. Branson has taken $30 million in deposits from customers hoping to take a 2½-hour space flight. Virgin Galactic is hoping to launch in 2010, and has many would-be rivals.

“All the rocket pioneers in town want to be like Burt,” says Bill Deaver, editor and publisher of the Mojave Desert News. “The stakes are big, the money is big, the glory is huge.”

Most Mojave rocket startups, however, are still operating on a shoestring. Roderick and Randa Milliron, both 57, have been operating out of Hangar 7 since 1996. On a microscopic revenue stream ($150,000 in 2007) they’ve managed to keep their business going and in flush times have hired up to 25 employees.

To fund their dream, the Millirons seize any side project they can find. They consulted with the state of Texas about locating a spaceport like Mojave along the Gulf Coast. Hollywood studios have paid to record some of the engine tests that the Millirons have conducted out in the desert. Spaceship sound effects in movies such as War of the Worlds and Serenity are from their rocket engines.

“Rod and Randa are from another planet,” says test pilot Dick Rutan, brother of Burt. “But nobody knows what’s going to work. Lots of industries we now take for granted grew out of innovators trying things. We need a whole bunch of ideas – the weirder, the better.”

The Neptune, powered in part by a proprietary fuel that the Millirons identify only as Hydrocarbon X, certainly fits that bill. The Millirons are currently seeking funding for a series of test flights of their 90-foot multistage rocket next year. In the long run they plan to offer full space vacations for as many as six people at a time. After a month of training, passengers would spend a week in orbit before the capsule parachutes into the ocean.

Such a ride does not come cheap: The Millirons plan to charge $2.5 million a ticket, although the first ten Neptune passengers will get promotional fares of $250,000. (A Virgin Galactic ticket is set to cost $200,000.)

“We’re not interested in a short flight where you kiss the edge of space,” says Randa. “We want our passengers to circle the earth, experience orbital sunrises and sunsets, and get a privileged perspective from 250 miles up.”

Over in Building 25, you’ll find a very different dream in progress. Instead of high-end space tourists, Dave Masten wants to capture the market for low-end space science. Masten is a Silicon Valley refugee who cashed in his options and moved here in 2006 after Cisco bought a small company he worked for. For a second act Masten is hoping to offer an alternative to an expensive NASA rocket program.

NASA regularly launches rockets to conduct zero-gravity experiments in the earth’s upper atmosphere. You can place your payload aboard one of these rockets. But competition is fierce, and the cost can be more than $1 million.

Masten asked 250 recent users of NASA’s rockets, “If I could bring down the cost to around $25,000, would you conduct more experiments?” The response was overwhelmingly positive, and Masten feels he’s found a niche worth billions. For one thing, all computer chip makers need ever more precise crystals. In zero gravity, crystals can grow with almost no defects.

Masten, 40, has also identified the nation’s 58 million schoolchildren as a potential market. He plans to offer something called a SodaSat, a Coke-can-sized payload that for a $99 fee can be transported alongside larger corporate and academic payloads.

“A kid could send a seed into space to learn how it’s affected by microgravity,” he says. “Wouldn’t that be an amazing science project?”

To capture these markets Masten needs to build a craft capable of leaving the atmosphere, providing a few minutes of precious space time, and returning the payloads safely to earth. He has staked his hopes on the XA rocket, a squat, pyramid-like design. A prototype of the rocket sits in his hangar with a gaggle of exposed wires, tubes, and valves. So far Masten has conducted tests where the XA has risen only a few inches off the ground.

Revenues for Masten are even more scarce than for the Millirons. Masten and his four employees have burned through $1.25 million, which includes his Cisco proceeds, funding from an angel investor, and money invested by friends. Masten has pretty much maxed out his credit cards as well.

Still, he defiantly predicts better test results for the XA. “Ever since I was a little kid I wanted to build rockets,” he says. “I still intend to.”

Racing rockets

Not all Mojave companies are coasting on fumes. XCOR Aerospace is the most prosperous of the local rocket startups, and the one with the best prospect of being the next Scaled Composites. Headed by former Intel executive Jeff Greason, 41, XCOR makes rocket engines for clients that include NASA. XCOR, now nine years old, even managed to turn a small profit in 2006, though it lost money in 2007 on revenues of $3.6 million.

Greason’s most glamorous commission so far is developing the Rocket Racer, a light aircraft powered by rocket engines, for the Rocket Racing League. Think of it as NASCAR in the sky: As many as ten rocket planes race around a five-mile circuit, 1,750 feet in the air. There would be spectators, of course, but the RRL will be a truly made-for-TV sport. The planes will be mounted with cameras, and the track will be superimposed the way first-down lines are laid out in NFL broadcasts.

The RRL is the brainchild of Granger Whitelaw, an auto-racing investor who provided the financial backing for two winning Indy 500 teams, and Peter Diamandis, creator of the X Prize. Its first exhibition race takes place at an air show in August, and XCOR is one of two companies providing the Racers. The prototype, about the length of an SUV, is hidden behind a scrim in a corner of XCOR’s hangar.

Greason continues to sweat the Racer’s details. The Racer can fueled in less than ten minutes, says Greason, but because pit stops will be as vital in the RRL as they are in NASCAR, he’s working hard to pare that down.

Then there are the plane’s rocket flames. Whitelaw requested something visually dramatic, so Greason used a mixture of liquid oxygen and kerosene. The result “is enormously bright,” he says. “I’ve seen it from about 15 feet away in daylight, and it’s almost painful to behold.”

To keep his workers focused on vehicle safety, Greason has laid down an unusual management rule: Each of XCOR’s 25 employees, down to the receptionist, will eventually fly in one of the company’s creations. When asked if she’s looking forward to her flight, the receptionist nods and flashes a nervous smile.

Building Mojave

After XCOR, the most successful spacebound small business belongs to Marie Walker, 47. Her 40-employee company, Fiberst, makes lightweight rocket parts from composite materials and had revenues of $2.4 million in 2007. It is privately held and profitable, according to Walker.

With her pink nails, frizzy blond do, and folksy style, Walker is hardly what you would expect a rocket entrepreneur to be. Raised in a cash-strapped family in a nearby town, she took a job at Fred Jiran Glider Repairs, which made parts for mail-order kit planes. She married a co-worker, Jim Walker, a self-taught engineering whiz, and the couple left to found Fiberset in 1983.

The company built a client list that included aerospace companies and boat-makers. All that was threatened in 2003, when the pair went through a messy divorce, and Marie wound up with the company.

“I wasn’t sure I could run it,” she says. In fact, she not only held on to the client base but also expanded it to rocket companies, for which Fiberset makes nose cones and another parts.

Walker’s success prompted her to give back to Mojave, where she organizes a model-rocket competition at a local school. Entrants are required to come up with a marketing plan for a space business that would launch 25 years from now. “I want these kids to be exposed to the opportunities they’ll have right here in their own community,” she says.

You see a lot of long-term thinking at all levels of the Mojave ecosystem. Take Jim Miller, 39, who left a low-level telecom job in L.A. in 2001. His Mojave company, High Desert Wireless, provides Internet service to the hangar headquarters of rocket pioneers. Revenues have doubled each year and now stand at roughly $500,000, and the company is profitable, Miller says. But that’s not where his dream ends: Miller aims to create a “giant Wi-Fi hot spot in space,” so space tourists can send e-mails home.

Many of these plans are hatched at the Voyager Restaurant, the greasy spoon of choice for rocketeers. Unlike many of its customers, the Voyager boasts healthy revenues – $500,000 in 2007 – and double-digit profit growth, according to owner Marie Saady.

The Voyager is packed at breakfast time, and a palpable buzz travels through the room when eminences like Dick Rutan arrive. Mojave’s more confident entrepreneurs order the Perfect Landing (eggs, bacon, and sausage patties), while others seem better suited to the Crash Landing (the above, mixed up on a tortilla).

Either way, it seems a fair bet that space business will still be here when the town’s grammar school rocketeers are all grown up.

More entrepreneurs are embracing a simple metric that measures referrals – and helps boost profits.

(Fortune Small Business) — 63 is the number for Quickparts.

It appears in the annual report, gets discussed at meetings, and lest any employee forget, 63 periodically flashes on the flat screens that appear throughout the Atlanta headquarters of this fast-growing maker of custom parts for clients such as Intel and Whirlpool.

Back in 2006, Quickparts’ number was 48, which is none too shabby. But here’s the difference between 48 and 63, according to co-founder Ronald Hollis: a 25% increase in customer referrals. That helped drive record profits in 2007 on $23 million of revenues, up from $17.5 million in 2006. This year Quickparts is aiming for 65.

“We want to just keep driving the number up,” says Hollis, 41.

What exactly is this magical metric? It’s called a Net Promoter Score, and essentially it measures customer satisfaction and referrals. The score represents the proportion of customers who are promoters – those so delighted that they praise a product or service to all within earshot – minus the detractors.

Posting the score to employees, and encouraging them to boost it, can help a business owner focus her staff on customer service. And inquiring into the sources of customer enthusiasm and anger can help the owner and her staff identify and bolster their strengths, while addressing their shortcomings. Hollis, for example, learned from his NPS follow-up that customers seeking price quotes online wanted more customized quotes, which he now provides.

NPS has been adopted and praised by large corporations such as Allianz Group, Pitney Bowes, and Intuit. Dan Henson, the newly appointed CEO of GE Capital Solutions, describes NPS as “one of the most powerful tools we’ve ever employed at GE.” Now, facing a weak economy and intensified competition from larger companies, many entrepreneurs are smartly tapping in.

“NPS is really taking off with small businesses,” says John Jantsch, who writes a popular blog called Duct Tape Marketing. “I can’t tell you how many e-mails I’m getting from NPS adopters or those looking to get started.”

Devotees – including the owner of a chain of Texas tanning salons, a Colorado franchiser of memory-improvement centers, and the head of a Delaware answering service and call center – laud NPS for its simplicity, contribution to revenue growth, and ability to identify exactly what is exciting customers or exasperating them. To be sure, some detractors say that NPS is simple to a fault, and we will hear more from them in a moment. But first, let’s examine what NPS is and how it works.

NPS is the brainchild of Fred Reichheld, a partner at the Boston consulting firm Bain & Co. and a pioneer in the study of customer loyalty. He spent a decade searching for a simple way to measure those customers so gaga about a product or service that they’ll praise it to anyone who will listen. According to Bain’s research, a company’s promoters are responsible for 80% or more of new customer referrals, making this group a key to revenue growth.

Here’s how NPS is implemented. First, ask your customers to rate you on a scale of 0 to 10 based on the question, How likely is it that you would recommend this company to a friend or colleague? Then sort the responses into three groups: promoters (9’s and 10’s), passives (7’s and 8’s), and detractors (0’s through 6’s). The percentage of promoters minus the percentage of detractors equals your score. A company with 75% promoters and 15% detractors, for example, would have an NPS of 60.

What do you do with this number? Drive it up, of course. Relentlessly up. That is achieved by asking a couple of additional questions, beginning with: May I follow up with you at a later date?

The permission clause is a key to NPS, according to Reichheld. The goal is to get constructive criticism from willing customers. You then contact those who agree to talk and ask one final question: Why did you give us this rating? Some of the most useful feedback comes from detractors. The idea: Unhappy customers will give you an earful, perhaps revealing some serious shortcomings of your business. Cure what ails this tough crowd and convert detractors into promoters, and up climbs your NPS. But some companies also seek feedback from passives (the 7’s and 8’s, who can take you … or leave you) and promoters (the 9’s and 10’s, who love you almost as much as your mother does).

According to Reichheld, the average U.S. company has an NPS of about 15. This varies by industry, with some, such as the makers of consumer packaged goods (score 24), faring pretty well, while others, like telecom/cable (- 4), are real dogs. No matter what the industry, each tends to have some companies with NPS scores well above 15. As a rule of thumb, score above 50 and you’re a star.

Not everyone, however, believes in the predictive power of Reichheld’s numbers. His detractors contend that the metric’s simplicity is, well, simplistic. One such naysayer, Claes Fornell, a marketing professor at the University of Michigan’s business school, did a comparison of NPS and the American Customer Satisfaction Index, a highly regarded survey that he developed using multiple variables. Fornell’s finding: The ACSI has a margin of error of +/- 3.3%, while NPS has a margin of error of +/- 10%, meaning that an improvement of five points in your NPS, to 55, could in reality be no improvement at all.

“It’s pretty clear that the person who put this together has no statistical background,” he says dismissively.

For his part, Reichheld contends that he simply touched a nerve when he created a demystified metric that put all the complex-modeling guys on notice, threatening their livelihoods. But guess what? Reichheld also quietly gives ground on that issue of statistical accuracy. In The Ultimate Question, his 2006 book on NPS, he claimed that a 12-point increase in the metric leads, on average, to a doubling of a company’s rate of revenue growth. Reichheld and his colleagues at Bain have backed off that claim, now saying only that increases in NPS can lead to increases in revenue.

There’s no denying there are valid questions about NPS’s statistical accuracy. Equally undeniable: NPS has the force of a revolution, and many businesses swear by it. To research this story, FSB spoke with more than 20 small businesses, and none regretted adopting the metric. What follows are profiles of three business owners, all enthusiastic converts to NPS, but each citing different benefits.

Learn What the Client Really Wants

Tony Hartl, 40, is CEO of Planet Tan, which operates 13 stores around Dallas. The company is profitable, he says, and has roughly $10 million in annual revenue.

Hartl began using NPS in November 2007, hoping to better address a challenge that he has faced since founding the business 13 years ago.

“The success of tanning salons is heavily based on the customer experience,” explains Hartl. “That’s really the differentiator.”

Think about it. Would a customer ever choose one salon over another because it uses a particular brand of tanning bed? No one cares. But finding that service edge can be elusive. Tanning salons tend to be staffed by wet-behind-the-ears employees who aren’t always polished at customer relations. High employee turnover, endemic in this industry, adds to the problem. In the past Hartl tried to gauge customer satisfaction using a lengthy e-mail survey. It required roughly 30 minutes to complete and featured such questions as: How much are you willing to pay for a membership? What radio station do you listen to? Hartl sneaked in the questions, hoping to learn where to advertise to reach his target market. The response rate was a paltry 3%, yet his staff was overwhelmed by the feedback.

“All this raw data created paralysis,” says Hartl. “People were left wondering, How does this apply to customers anyway?”

He has since discontinued the offending survey in favor of NPS. Launching the new system was easy, he says. Training for his staff consisted of a half-hour PowerPoint presentation, developed in-house.

There was no need to retain Bain. Sure, the consultancy has a thriving NPS practice, serving the complex needs of large clients like GE. But the average entrepreneur can learn everything necessary to launch NPS by talking to peers, going to a conference, or simply reading The Ultimate Question, as Hartl did.

Last fall Planet Tan e-mailed that single question (“How likely is it that you would recommend this company to a friend or colleague?”) to 11,695 of its customers. The response rate was 11%. The various rankings, from 0 to 10, were tallied, and the company arrived at its NPS score: 66.

“Everyone just got it. Here’s a single number that can go up or down, depending on interactions with customers,” says Dawn Byers, 32, a Planet Tan executive who worked closely with Hartl to introduce the metric.

Next step: The company divvied up the detractors among the managers at its various locations. But implementing NPS required some effort. Sometimes it took Planet Tan managers three or four phone calls to reach a detractor.

“For small businesses with limited resources, going after all this data can be time-consuming,” says Vikas Mittal, a marketing professor at Rice University’s business school who specializes in customer-satisfaction issues.

“Sure, it takes some time,” allows Byers. “But the benefits so outweigh the time spent.”

The feedback proved illuminating, she says. For example, Planet Tan received complaints about the way its fee is structured. The company sells its customers credits, redeemable for tanning-bed time. Some said it was confusing, not unlike being on a cruise ship where you never know how much anything costs in actual dollars. As a consequence, Planet Tan now offers a simple monthly membership.

Survey detractors also said they were less than enthralled by the experience of leaving a Planet Tan salon. Sure, the staff was all smiles and chitchat when customers arrived. But following the tanning sessions, those same customers felt lucky to get a goodbye. The staff was totally focused on new arrivals.

That consistent beef led Hartl to introduce a new policy he terms “post-tan affirmation.” As someone exits, employees are now required to say things such as “You got some good color today” or “Can I offer you moisturizer?”

During the first months of 2008 same-store sales have risen more than 15% year-over-year, according to Hartl. This, in a tough economy. He attributes the results partly to various moves made in response to the NPS data. Planet Tan will be doing another NPS survey this summer. Hartl is hoping to hit 70.

Prevent Silent Attrition

During an average 24 hours, Appletree Answering Services takes 70,000 phone calls. The company (2007 revenue: $12 million), based in Wilmington, Del., operates 12 call centers, a bland appellation for a fiercely competitive business. Appletree’s customers include doctors and lawyers, for whom it provides messaging services, and companies such as Siemens, for which it provides after-hours help-line support.

“Our customers depend on our services every single day,” says CEO John Ratliff. “That puts us on a hyper track for good and bad experiences.”

Appletree conducted its first NPS survey in 2006 and scored a 26, a mediocre mark for its industry. Ratliff, 37, took the result as a wake-up call. To push the score higher and to get a better read on customers, he has taken a particularly rigorous approach to NPS. Each quarter, Appletree surveys its 5,600 customers and gets a consistent response rate of around 20%. Appletree doesn’t focus solely on detractors as some companies do, and finds that there’s also much to be learned from the other groups. Each department within Appletree is charged with following up with different sets of customers. For example, the call center managers contact the passives.

“This is our sweet spot,” says Ratliff. “The 7’s and 8’s are the silent-attrition group. Something is likely nagging at them, but they’re currently just satisfied enough not to complain. One day we’ll look up, and they’ll be gone.”

Feedback from that group has yielded some useful insights. For example, customers consistently expressed annoyance that it took several calls to resolve a billing issue. That surprised Ratliff. He had thought about Appletree mostly in terms of its core service: answering phones. Here was something ancillary to that core service – the billing process – but it was irritating customers. Ratliff responded by giving Appletree’s service reps more latitude to solve simple billing issues, such as the ability to waive certain computer-generated late fees.

Meanwhile, the company’s most enthusiastic customers are handled by the sales department. That’s right: Sales gets to make all the fun calls. But there’s a practical reason for it.

“It helps fire up the sales force,” says Ratliff. “It reminds them what customers like about us.”

The feedback also helps the sales team tailor its pitches. Appletree’s best customers, for example, particularly liked the way the company treated them when they first signed up for the service. An account manager always contacts new customers to go over options for handling each call. For a doctor, the service rep might suggest that the phone operator inquire whether the call is an emergency. Now when Appletree salespeople try to land a new account, they emphasize the customer “welcome experience.”

The 1’s are reserved for Ratliff, Appletree’s intrepid leader. He dismisses the feedback of cranks and loonies. But often, he says, people who’ve rated Appletree the lowest score have legitimate gripes.

“You tend to hear the same things over and over again, albeit loudly and with colorful language,” says Ratliff. “You can often learn more in a customer call than from an entire focus group.” One steamed customer complained that when Appletree takes a phone message, too much time elapses (generally several minutes) before an e-mail notification is sent out. That was an easy fix, says Ratliff. Appletree now offers an instant-notification option to customers.

Appletree gets feedback from a variety of customers. So how does the company keep track of it all? It maintains a database with brief summaries of each of those interactions. Type in a search term such as “billing problem” and find out how many complaints were registered and when.

For the latest survey, Appletree’s NPS rose to 56, evidently the result of responding to customers. But the clearest sign of progress: Customer referrals were up about 200% in 2007 vs. 2006, and profits climbed as well, according to Ratliff.

Link Pay to Customer Delight

Good customer service is a key to a healthy enterprise; on that, every business owner can agree. But customer service also tends to be relegated to the squishy bin, along with personnel development. When it comes to doling out cold cash, companies generally favor tying rewards to measurable targets such as profits. Because NPS assigns a hard number to customer service, some companies have found that they can tie this metric to compensation. The results have been impressive.

Ken Gibson, 63, is founder of LearningRx, a Colorado Springs company that helps clients improve their memory and concentration. LearningRx has 66 franchises in 24 states, a steep climb from just 15 in 2004. According to Gibson, the firm is profitable, with revenues of $30 million in 2007.

LearningRx is intensely customer focused. The key to its business is building successful relationships between the tutors and their students, which include kids with learning disabilities and patients with Alzheimer’s, among others. When Gibson first heard about NPS, a light bulb went off. Rather than tying bonuses to student test results, as he had in the past, he could tie them directly to customer satisfaction. In 2006, Gibson introduced NPS as what he calls a “reward and shame system.”

Here’s the drill. While LearningRx tracks NPS on a companywide basis, it also figures NPS for individual tutors. The scores then determine the size of each worker’s bonus. Tutors who achieve a score of 90 or better receive bonuses equal to 20% their base pay; those scoring 70 to 89 get as much as 10%. Below 70, they get nada. The system seems to be working. Since it started tracking NPS, LearningRx has seen its number improve from 70 to 72.

Given that money is at stake, you might wonder what prevents tutors from trying to influence what their pupils say about them. To head off this possibility, Gibson has made it clear that anyone caught gaming the system will be fired immediately. Just to be sure, he’s added a question to the follow-up interviews, which are conducted by the franchise managers: Were you in any way led or encouraged to give a higher rating?

And what about the “shame” part of Gibson’s system? Well, it’s also possible to calculate the NPS for each of LearningRx’s 66 franchise locations. For the annual convention this summer, the franchise owners will wear nametags that feature their NPS score. Just imagine:

Paul … 78 … So very nice to meet you!

Stu … 24 … Yeah, hi.

The NPS metric may not be appropriate for every small business. If you have only a handful of customers and know them well, there’s no need to set up a new system. But for business owners who want to keep in closer touch with their customers, this metric can provide valuable feedback that you can use to turn an unhappy client into one who will sing your praises. 

It can be a great way to protect your heirs – or a giant waste of your savings. Here’s how to tell which.

 (Money Magazine) — It’s not alarmist to think that you’ll need long-term care in your lifetime. Among Americans who reach their 65th birthday, 45% will have to pay for some kind of long-term-care services, according to the actuarial firm Milliman.

Yet the decision whether to buy a long-term-care insurance policy, which pays out for nursing-home and certain at-home care, is one of the toughest calls you’ll ever have to make. Insurance could preserve your estate for your heirs and save incredible heartache. On the other hand, it’s expensive and chances are you won’t need it.

Unlike most stories you’ll read in Money Magazine, this one won’t give you a definitive answer. But we’ll tell you what to consider as you weigh your comfort level with playing the odds.

Strictly by the numbers

There’s no question that years in a nursing home can decimate your savings. The average facility now costs $213 a day, according to a MetLife survey; based on last year’s 3% yearly price increase, by 2030 you can expect to pay $408 a day, or $148,967 a year. For a 2½-year average stay, the tab would be about $372,000.

The chances that you’ll need that much care, however, are small. Only 9% of 65-year-olds can expect a lengthy nursing-home stay, according to Milliman (another 18% will need long-term assisted-living care).

But even a long-term stay could be a matter of months, not years. Suppose you’re a healthy 58-year-old. You’d pay at least $1,000 a year for a policy with a $150 daily benefit that adjusts for inflation each year.

Invest that money instead and you’ll end up with $65,330 at age 80 (assuming 8% annual returns). While that wouldn’t even cover six months in a nursing home in 2030, it’s money you can spend or leave to your heirs if you never need long-term care.

But wait…

What if a debilitating illness runs in your family? In that case, your odds of needing expensive long-term care increase. Or perhaps you want the peace of mind of knowing that a lengthy nursing-home stay wouldn’t financially devastate your spouse or your kids.

Even if you feel that you’re a candidate for this insurance, you have to confront the policies’ expense. Don’t buy unless you can afford a premium hike of 10% to 20% and can continue to make payments for 30 or so years.

A good rule of thumb: Spend no more than 7% of your income on premiums. And keep in mind that the average $1,000-a-year policy pays $150 a day, only 70% of the typical cost of care today.

If you want to avoid a shortfall – or if nursing- home costs are high in your area – you may need a more expensive policy. And if you can’t pay at any point, you’ll likely be left with no coverage at all. Then the money would really have been wasted.

Keep in mind

If you want to purchase long-term-care insurance, get the maximum flexibility you can afford. To keep your premium down, pick a 90-day elimination period (the long-term-care version of a deductible). But opt for 5% yearly “compounding” inflation, which costs more but will ensure that your coverage keeps up with price hikes. And keep saving – even if you have insurance, you’ll wind up paying for a portion of your care. 

With the economy slowing and Washington threatening to boost audits of small businesses, it’s time to rethink your tax strategy. Here are some commonly overlooked moves that could save you thousands.

(FORTUNE Small Business) — There are two proven paths to building wealth: You can increase the amount of money you make, or you can increase the amount of money you keep.

Chances are you devote abundant time and energy to the first strategy, meaning you’re utterly consumed with developing new products or breaking into new markets. But the second path tends to get less consideration, particularly because one of the primary ways of keeping more money is paying lower taxes.

Taxes are painful not only to pay but to think about. Taxes are complex. Figuring out ways to shave your tax bill is not why you went into business.

But ignore the subject at your peril. In an effort to shore up a record deficit, the IRS is increasingly targeting small businesses for audits and has made no secret of the fact.

Consider 2006, when the IRS audited nearly 18,000 small companies (which it defined as those with assets less than $10 million), up from 7,000 in 2004. At the same time, many small-business owners overlook key deductions and wind up needlessly giving away hard-earned cash.

To help you make the most of your tax-saving opportunities, FSB spoke with some of the nation’s top experts on small-business tax issues, who offered smart moves that are often overlooked even by sophisticated entrepreneurs: under-the-rug tax credits, record-keeping tips, audit red flags, and more.

Read it – and reap.


Overlooked Deductions

Start tallying the write-offs that are frequently missed by small-business owners and the list grows fast. There are no reliable statistics on just how much money is left on the table, but tax experts agree that many small businesses overpay by thousands of dollars.

“When you get a visit from the IRS, they always say they are trying to make sure the tax payment is correct. I’ll tell you this, I’ve never seen an agent give anything back,” says Gerald Louviere, a tax partner in the Dallas office of PricewaterhouseCoopers.

Which means you should take every single write-off you’re due — and what’s available may surprise you. Here’s a classic example: Small companies frequently miscategorize the cost of business-trip hotel stays as entertainment (50% deductible) rather than lodging (100%). The feds are only too happy to hang on to this windfall.

Linda Rey, 41, is co-owner of Rey Insurance, a broker based in Sleepy Hollow, N.Y. The firm had $700,000 in revenues in 2007, and profits are growing at an average annual rate of 10%. Part of this success Rey attributes to savvy accounting advice. She and her partners (who also happen to be family members) hold a monthly dinner at a restaurant, which they treat as an offsite strategic planning meeting (100% deductible) rather than a business meal with a client (50%). Even with coffee and Dunkin’ Donuts for the Friday morning meeting, she always takes the full 100% deduction, while many companies wrongly file this under meals and take half.

“I pay careful attention,” says Rey. “Otherwise you end up giving a lot of money away.”

Esoteric-sounding write-offs are especially likely to get overlooked. Don’t let their eye-glazing names fool you; often these tax breaks can deliver serious money. Do you manufacture a product in the U.S.? You may be eligible for the Domestic Production Activities Deduction. This write-off, introduced as part of the American Jobs Creation Act of 2004, is designed to reward companies that use U.S. labor. The maximum benefit is a 6% deduction on net income, though it rises to 9% in 2010. One caveat for small-business owners: The deduction cannot exceed 50% of the W-2 wages a company pays in a given year.

Manufacturers routinely take the domestic-production deduction, but the definition of production is sufficiently broad to cover some unlikely enterprises. For example, an architecture firm that designs a U.S. building might well be able to take the write-off. Ditto, the general contractor that executes the project. Software companies, farms and other agricultural businesses, and various mining operations are also eligible.

The domestic-production break is what’s known as a zero-cash deduction, a particularly valuable type. With an ordinary deduction you have to spend money — buy a drill press or take a client to dinner, say — to take a write-off. To claim the domestic-production write-off, all you have to do is, well, make stuff in the U.S. (or even partly in the U.S. to qualify for a partial deduction). There’s no particular “event” to trigger the deduction, which is why it tends to get missed, says Steve Hurok, tax director of BDO Seidman in Woodbridge, N.J.

Tax Credits are Golden

Here’s a reason to introduce your accountant to even your most junior hires: Some of them may qualify you for generous tax savings. If you employ certain types of disadvantaged workers, you may be eligible for the lucrative Work Opportunity Tax Credit (WOTC). Congress spells out with extreme precision — and periodic updates – which workers qualify. Here are some examples: those between the ages of 18 and 39 who live in federally designated enterprise communities; ex-felons hired within one year of their release date; recently discharged veterans injured in the line of duty and out of work for six months or more.

The WOTC can lower your federal tax bill by as much as $4,800 per qualified worker during the first year of employment. However, the paperwork requirements are stiff. You need to complete the one-page IRS form 8850 on the day an employee is hired, and it must be mailed within 28 days of the person’s start date. The WOTC is tailor-made for restaurants, retailers, and other industries that use a lot of unskilled labor. Yet tax experts note that these very businesses, especially small ones, hardly ever claim it.

Chances are you’re ill inclined to immerse yourself in the IRS tax code, all 3.4 million words of it. So how do you make sure you’re getting your rightful breaks?

Press your tax preparer. If your CPA seems hazy or hesitant, consider hiring one who is more aggressive. How aggressive? You want to claim every penny you’re due, but you don’t want to risk the ire of the IRS. One good rule of thumb is to submit your prospective write-offs to the laugh test.

“If it makes you snicker, chances are you’ve gone too far,” says Hurok.

Organization Pays Dividends

With the 15th of April just weeks away, many entrepreneurs are involved in a fevered annual exercise. ‘Tis the season to reconstruct last year’s expenditures. Owners and their bookkeepers are rifling through bewildering piles of dimly remembered receipts.

This is no way to live. Better to have a thorough system for recording expenses. “Have someone gather all receipts, annotate them when necessary, go through them regularly – once a week or month – and place them in well-labeled folders,” urges Chet Burgess, owner of Brookwood Tax Service, based in Atlanta.

Vigorous record keeping will help you claim all the deductions you’re due. It will also make you far better prepared for an encounter with the IRS, an increasingly likely event. A few years back, the IRS — under congressional scrutiny for overzealousness — trimmed its collection activities. Now the pendulum has swung back. Small businesses are notoriously sloppy record keepers, say accountants, making them easy marks for the IRS.

Neil Mammen, 45, is founder of Tentmaker Systems, a San Jose chip and circuitboard fabricator with eight employees. Recently he had a brush with the IRS that served as a wake-up call. In 2006 the agency contacted him about $30,000 worth of receipts. They assured him that this was not an audit … yet. They just wanted clarification. Yes, the IRS often takes steps short of an audit, contacting business owners by mail. Fail to satisfy them and an agent will probably show up on your doorstep for a dreaded “field audit.”

As a typical disorganized entrepreneur, Mammen found that he was woefully underprepared. Some of the receipts in question he found stuffed in a shoebox (no kidding). For others, he had to call vendors and ask for invoices. Others still required him to contact Visa to get originals at $10 a pop. (The IRS won’t usually accept a credit card statement, though it will accept the digitized receipt copies that some card issuers send with each bill.) “It was scary, a nightmare, and it ate up a lot of my time,” says Mammen. Ironically, those $10 receipt fees — along with any other costs incurred while satisfying an IRS inquiry or audit — are tax-deductible. In the end, the IRS did not deny any of his deductions.

Mammen has since found record-keeping religion. He uses a device called Neat Receipts to scan receipts directly into his PC. There he organizes them according to standard categories such as meals and office supplies. Then he backs the whole thing up in triplicate. Tentmaker Systems is profitable and had $1.6 million in revenues in 2007. After getting more organized, Mammen says, he was able to increase his deductions by about 20% this past year.

A word to the wise: Even original receipts won’t be enough to appease the IRS in certain cases. With entertainment, for example, you need to annotate the receipt, listing who was present and what business was discussed. “The IRS likes to look closely at things that seem fun,” says Joseph Anthony, a tax preparer based in Portland, Ore. “Items like cars and travel and cellphones require enhanced substantiation.”

This may seem like a hassle, but it pales in comparison with the kind of mayhem the IRS can stir up. If you are audited, typically agents will start with one year’s tax return. Produce neatly organized receipts, and they may just go away. Arouse the IRS’s suspicions, and it may start digging into other years.

At their discretion, agents can disallow questionable or poorly substantiated deductions. Meaning that a business owner has to pay back taxes. Throw in interest on the back taxes and penalties, and the tab can grow to be eye-popping. In rare instances, when the IRS suspects out-and-out fraud, it brings criminal charges that can result in jail time.

Get the Timing Right

What deductions you’re able to take is not the only consideration. It also matters when you take them. With taxes, as with so much else in business, timing is key.

Scott Kelley, 47, is a co-founder of Service Center Metals, based in Prince George, Va. His company makes aluminum rods, bars, and other pieces that get turned into everything from chopper handlebars to putter heads. Kelley’s old-line manufacturing company bears scant resemblance to an accounting firm. Still, he thinks about tax strategy with the kind of precision most owners reserve for, say, pricing.

Service Center Metals uses expensive equipment. Writing off such major purchases usually takes years and must be done in accordance with depreciation schedules laid out by the IRS. With the help of a canny accountant, the company has found ways to accelerate various deductions, which allows it to get more money more quickly.

In 2005, Service Center Metals purchased a $500,000 air compressor that typically would be considered part of its factory building, requiring a 39-year depreciation. The firm’s CPA documented for the IRS that the compressor is actually used in the manufacturing process – not merely part of the building – making it possible to depreciate it over just seven years.

Service Center Metals owns two aluminum extrusion presses, one dubbed Elvis and the other the Boss, after Bruce Springsteen, whom Kelley has seen in concert more than 50 times. Pricetag for the presses: $11 million. The firm’s CPA provided the IRS with careful documentation on how the presses are used, which allowed the company to write them off faster. All told, accelerated deduction yields hundreds of thousands of dollars to Service Center Metals each year and helps fuel the five-year-old company’s growth: from $45 million in 2005 sales to $145 million in 2007. Profits in 2007 were up 40% over the prior year.

“From the very beginning, we’ve tried to align our growth strategy with tax strategy,” says Kelley. “Get money back quickly, use it to fund expansion and buy better equipment, make more money.”

Your company may not be in the habit of buying heavy machinery. As it happens, there’s a fantastic tax benefit for less capital-intensive businesses. It’s called Section 179. For 2007 you can take an immediate write-off on as much as $125,000 worth of equipment. The definition of equipment is loose enough to include everything from computers to lighting fixtures to bookshelves. To qualify for the whole Section 179 deduction, your company must have made less than $500,000 in equipment purchases during the year. Above $500,000, the benefit phases out, dollar for dollar.

Say your company spent $5,000 in 2007 to purchase two new computers. Ordinarily the IRS requires you to write them off over five years. The IRS has an excruciating publication, No. 946, that lays out depreciation schedules for everything from tractors (three years) to tugboats (ten). But under Section 179, you could take the full write-off right away. “If I offered you $5,000 now or $1,000 a year for the next five years, which would you take?” asks Tom Ochsenschlager, VP of taxation for the American Institute of Certified Public Accountants, a professional association based in New York City.

Of course, sometimes it makes sense to spread a deduction out. If you’ve had a lackluster year, a big, immediate deduction may not make sense. If you are posting a loss, extra deductions are worthless in that year. In such cases, you might want to depreciate your purchases, reserving write-offs for future – and better – years.

Get Savvy on Transportation

Vehicle deductions can be particularly tricky. Many owners wind up driving blind, say experts, unaware of how much money they’re losing through poor tax planning. Not so Dennis Verkest, 55, the owner of A Chimney Sweep & More, based in Valrico, Fla. Because Florida homeowners don’t use their fireplaces much, Verkest says he travels great distances to service the clients he has. He logs more than 15,000 miles a year in his Ford F-150 pickup. His solo operation will collect roughly $100,000 in revenues this year and is profitable.

Verkest arrives for jobs dressed all in black and sporting a traditional chimney sweep’s top hat. “I don’t wear tails,” he says. “It’s just too hot.”

Because his pickup is fairly new (2004 model year), conventional wisdom holds that Verkest should take the normal deductions. For a car or light truck, you get a write-off that changes from $3,060 in year one to $1,775 in the fourth year and onward until you’ve depreciated the purchase price. You can also deduct the cost of insurance, repairs, and – critically – gasoline.

But Verkest chose option two: standard mileage. You can’t depreciate the cost of the car or write-off gas. Instead, you take a simple deduction based on how many miles you drive. For 2008 it’s 50.5 cents a mile, up from 48.5 cents in 2007. By choosing the mileage rate, his CPA figures, Verkest will be able to increase his write-off by as much as $750 over the normal deduction. “I’ll do anything to keep more money in my pocket,” Verkest says.

By the way, you can also take a Section 179 deduction when you buy certain new or used vehicles. The write-off is $25,000 for a truck heavier than 6,000 pounds – a Hummer or Range Rover, say. At the same time you get to take accelerated depreciation on the purchase price starting at 20% the first year and then at varying rates thereafter.

Bottom line: If you have a newer car or don’t drive so many miles, the normal deductions might be the way to go. If you drive a lot, standard mileage may be the ticket. In many cases you can switch from one kind of deduction to another. Switching can be wise as a car gets older and is due a smaller normal deduction.

“Do the math each year,” urges Barbara Weltman, author of J.K. Lasser’s Small Business Taxes. “You can be surprised to find that you’re losing money by taking the wrong vehicle deduction.” Find the right one, and you’ve earned yourself a juicy tax cut.  

Surveys show that more consumers than ever are fed up with bad service. Meet entrepreneurs who are profiting by bucking the trend.

 (FSB Magazine) — All Adam Reuter wanted was the video of his graduation from Villa Julie College in suburban Baltimore. After two months the production company finally sent a DVD, but it featured the wrong graduation ceremony. Over the next two months Reuter called the firm, VPC, repeatedly, but got no satisfaction.

Fed up, Reuter grabbed his camcorder and showed up unannounced at the offices of VPC, a small outfit in Reisterstown, Md. He proceeded to grill the owner 60 Minutes-style. What was taking so long? Why wouldn’t anyone return his calls? Reuter got his DVD, which had simply been languishing on a shelf. Reuter also opted to put his footage up on YouTube and has gotten 1,467 views. “They didn’t do anything quick until I showed up with a camera,” he says.

“I can’t explain it. It just happened,” says Eli Eisenberg, VPC’s owner. “We pride ourselves on good customer service.”

Adam Reuter has lots of company in his frustration – and his easy recourse to online revenge. Do a web search using terms such as “customer complaints,” and alongside Reuter’s mini-exposé you will find millions of videos, blog entries, and other web postings from angry consumers. Airlines such as Jet-Blue have been the target of particular ire, amid a rash of delays and cancellations.

But the sheer variety of complaints is astonishing: broken products, broken promises, problems starting up a service, problems canceling one, endless hold times, calls bounced to Bangalore, rude reps, incompetent reps, automaton-like reps who stick to irrelevant scripts.

According to the University of Michigan’s 2007 American Customer Satisfaction survey, overall customer satisfaction remains flat over the past year. In some industries such as computers, hotels, and restaurants it is getting worse. In the 2005 Customer Rage Survey, the most recent available, 70% of respondents who had a problem reported feeling this fevered emotion at least once during a recent transaction, up from 68% in the 2003 poll.

As for those unpleasant interactions, each victim had on average four exchanges with the offending company to resolve the problem. And 15% of the ticked-off customers entertained fantasies of revenge: They said they’d like to repeatedly pester the business, and cost it time and money as payback.

“Companies are routinely out of touch with just how angry customers are,” says Scott Broetzmann, president of Customer Care Measurement & Consulting, an Alexandria, Va., firm that conducts the rage survey in partnership with the W.P. Carey School of Business at Arizona State University.

Now for some good news. As new technologies empower the aggrieved to expose bad service, fresh opportunities are rising for anyone who can delight customers. That especially holds for small businesses. Competing with larger rivals on the basis of price or selection is usually a losing game. But service can become a powerful differentiator and a way to boost margins. And it is often best executed by smaller companies, where the owner is leading from the front. “Good service really stands out these days,” says Chip Bell, a Dallas consultant who specializes in customer satisfaction. “Take that extra step, deliver what I call ’sparkly service,’ and oh, boy!”

FSB went in search of small companies that have mastered the art of extreme customer service. We talked to experts, business owners, and of course customers. One point quickly became clear: Every company says it gives great service. But actually delivering is a very different matter.

We tuned out the talkers and focused on the walkers – companies that have creatively delivered big upgrades in customer service. We picked seven that represent a range of industries and challenges, from catering to finicky B-to-B customers to providing superb service over the none-too-friendly Internet. All attend to customer service in a systematic way; maybe some of their methods are worth adapting for your business.

Know your client’s culture

Visit the Manhattan headquarters of Genesis 10, a technology and business consulting firm, and here’s what you won’t see: cheesy posters with sayings such as “the customer is always right.” Neither will you hear its employees repeating customer-focused mantras the way they do at so many firms. “Our commitment goes deeper than that,” explains Harley Lippman, the firm’s founder and CEO. “We’re looking for ways to truly engage with our customers.”

Genesis 10 has 120 clients, including such blue chips as J.P. Morgan, United Healthcare, and Wells Fargo. Lippman says it has been profitable every year since its founding in 1999, and annual revenue has grown from $7 million in its first year of operation to $134 million in 2006. Before undertaking a consulting gig, Genesis 10 devotes ample time to learning about a client company’s culture. According to Lippman, many of his rivals (including Big Five firms) simply parachute consultants into a new organization. They figure that any thorny cultural issues can be worked out on the client’s time – and dime.

Genesis 10 hires recently departed employees of the client company to brief its consultants. This provides vital insights: A client such as the Principal Financial Group, an investing and insurance company based in Des Moines, wants consultants to fit into an environment that puts a premium on teamwork. Meanwhile, a type-A outfit such as New York City–based Goldman Sachs, which is built on individual superstars, wants consultants to immediately step up as leaders.

“This is a people business. That’s how projects succeed or fail,” says David Granger, an executive at the insurance giant Northwestern Mutual in Milwaukee and a Genesis 10 client. “They know to work differently with us than they do with Citibank, say.”

Because Genesis 10 arrives prepared, the firm is able to hit the ground running. Lippman estimates that he beats a client’s project deadline 60% of the time – in a business in which deadlines tend to be arbitrary and get pushed back repeatedly, to clients’ dismay.

While some companies rely on empty gestures (one outfit FSB encountered gives its employees “kudos” for great service), Lippman hands out cash and prizes, tied directly to exceeding customer expectations. He goes out of his way to make those spot bonuses thoughtful and surprising – just as good customer service should be.

In one instance an executive at Johnson Controls called to thank Lippman for providing such great service. In response, Lippman lent his credit card to the two consultants in charge of the project and told them to enjoy a three-day weekend in Vegas. “We’re always encouraged to go above and beyond for customers,” says Sara Brahm, one of the bonus recipients. “The bonus reinforced that message. It was surprising and special, but this time it was for us.” The two consultants spent less than $2,000 total on their Vegas getaway. Grateful employees are unlikely to go wild on the boss’s nickel.

Another time, a Genesis 10 consultant who happened to be a hockey fan beat a tough deadline, thrilling the client. Lippman presented him with a hockey stick autographed by Wayne Gretzky and packed him off to Phoenix for a game.

Lippman makes a significant portion of his consultants’ pay variable, tied directly to customer service. Such bonuses are usually triggered when Lippman or one of his account managers gets a call from a satisfied client or when one of them recommends Genesis 10 to a potential customer. But Genesis 10 routinely debriefs clients at the end of each engagement to identify extra-pay-worthy performances.

One more secret to Genesis 10’s success: The firm says no. A lot. Lippman explains that while he took on $134 million worth of work in 2006, he turned down gigs potentially worth millions more. He routinely nixes assignments that might stretch his staff too thin, along with jobs that are outside his consulting specialty. That way he avoids diluting his focus.

“We’re selective. It allows us to maintain the illusion that -every customer is our only customer,” says Lippman, who provides his cellphone number, e-mail address, and home number to every client.

Software that sells

Customer service demands a deft personal touch, no question. But technology can also help. Small-business owners face more and more software options that promise to help them track and initiate contact with buyers. Customer-relationship management or “CRM” software can maintain a record of customer interactions or send an automated alert if a service issue is unresolved. Among the most popular CRM programs for small businesses are Microsoft Dynamics, NetSuite, RightNow, and Salesforce.com.

“You can’t become a paragon of customer service by simply buying software,” says Paul Greenberg, president of the 56 Group, a CRM consulting firm in Manassas, Va. He offers a couple of caveats. Software is available off-the-shelf or online, but always adapt it to your company. Also, many firms are tempted to use the programs to fully automate their customer-service functions. But forcing your customers to navigate intricate phone trees and such – especially when a live rep is nowhere to be found – is likely to produce rage rather than delight. Better to use CRM software to enhance a company’s human touch.

Doug Chapman took this approach. He owns HyperFit USA, a gym in Ann Arbor, Mich. He’s also a devotee of cross-fit, a regimen that builds strength and flexibility and employs some exotic devices such as Russian kettlebells. For the ideal CRM system, Chapman had a detailed wish list. So he hired a techie to cobble together several pieces of software including ACT!, a popular database program, and Constant Contact, used for sending out various e-communiqués such as newsletters and tracking the responses.

“My gym is different, and I wanted to provide a different customer experience,” says Chapman, 39, an All-American wrestler with an MBA from Eastern Michigan University who has done stints in the Navy and at Smith Barney.

The key is to customize the software to fit the needs of the customer. HyperFit USA holds frequent seminars on topics such as self-defense. This is a great way to trawl for new customers. Chapman gathers the e-mail addresses of seminar attendees. Then he sends them his gym’s e-newsletter. Thanks to a special tracking app, it’s possible to tell whether a prospect opens the newsletter and even which articles are read. (Chapman doesn’t feel he needs to get permission to track the reading habits of those leads.)

Say a prospect reads an article on nutrition. Now Chapman has valuable information about her interests. He can instruct his staff nutritionist to give her a call and perhaps land a new customer. Chapman estimates that around 10% of these calls result in a new membership, vs. a conversion rate of less than 1% from the mailers he used to send out when he worked for a big-box gym.

When new members join HyperFit, they fill out forms that highlight their fitness goals and any health issues. The information, which is stored in a database, comes in handy in all kinds of ways. If a member works with several trainers, for example, all have access to the database. “A trainer might say, ‘I know you’re bothered by a bulging disk. Let’s modify your routine from that of the rest of your classmates,’” says Chapman.

If a customer doesn’t show up for three weeks, an e-mail alert is automatically triggered. Trainers then decide how to respond case by case. Sometimes they call and gently urge the laggard to get back to the gym. Other times more subtle tactics are called for. Recently someone joined the gym planning to run a marathon, but stopped coming while in the throes of a messy divorce. After three weeks an alert went out. Rather than calling, Chapman e-mailed an article about marathon training. The man soon returned to the gym.

Chapman started HyperFit in 2004 and says he still has nearly all of his first 50 customers. Membership has since grown to about 300. This year it will collect $400,000 in revenue and is profitable, according to Chapman. Both a Bally and a Gold’s gym are within a mile of his facility, yet he’s been able to compete effectively. Next he wants to take HyperFit national.

Apply a human touch

While it’s hard enough to get good service from brick-and-mortar businesses, finding it on the Internet can be ever tougher. The upside of e-commerce is that you can shop from the comfort of your home at 2 a.m. The downside: Just try finding a customer-service phone number on the average website. Most online vendors promise e-mail support, but a recent study by JupiterResearch found that more than a third took at least three days to respond, and many never did.

Inspired by the poor service she en-countered on the Internet, Kassie Rempel, 34, quit her job as a financial planner and started SimplySoles, an online women’s shoe emporium. Rempel’s company, based in Washington, D.C., specializes in high-fashion shoes. Some notable designers, such as Bettye Muller, have created designs exclusively for SimplySoles. Given the haute pricetag (average pair: $275), you can bet there’s a toll-free number, and it’s even possible to reach Rempel directly.

For certain customers Simply-Soles will send out a selection of shoes – no charge, no commitment. To qualify, one doesn’t have to be a loyal customer or place a huge order – although that certainly helps. Sometimes SimplySoles provides this service to a first-time customer who is unsure of her exact size in a particular brand. Other times the decision is made on a gut feeling. “I won’t do this with everyone,” says Rempel. “It’s based on my comfort level and that of my staff.”

These select customers can try on shoes in their homes to see which pair looks best with a particular outfit. Customers are billed only when they make a purchase; the remaining shoes can be sent back to SimplySoles in prepaid mailers at a cost of about $12 a returned pair roundtrip.

Kaethy Kennedy, 42, is an L.A. executive who is active online: shopping, banking, paying bills. She often orders European styles from SimplySoles and says the sizes don’t always correlate to American makes. She appreciates the option of trying on several pairs at a time and keeping only the one that fits. “They’re like a little neighborhood boutique, only they’re online,” she says.

SimplySoles also sends out handwritten thank-you notes to every customer who orders shoes. The notes address the customer and shoe by name: Dear Amy, We hope you will enjoy your pair of Gaby slides by Tory Burch. Some days Rempel and her seven employees churn out as many as 200 of these notes, a huge time commitment. But Rempel says it pays off because feedback from customers indicates this little touch helps build loyalty. Rempel has even received notes thanking her for the thank-yous. “It’s an important piece of who we are,” she says.

SimplySoles, which also has a catalog business, is profitable, says Rempel, and will post nearly $2 million in revenues this year, a big jump from $200,000 in 2004, its first year of business. Given the intense level of service, she feels there’s a limit to how big SimplySoles can grow. Rempel says her goal is to build a $10 million-a-year company, not a $100 million one.

Customers who serve themselves

If you want your customers to love you, give them want they want. Duh! This sounds simple, but isn’t so easy to execute. Which customers? What if they can’t explain clearly what they want? One way around this dilemma is to involve your customers early on in the design of your product or service. In industry jargon, this is called user innovation. The concept has been around for a while, though it is growing in popularity.

Many small companies have now jumped on the user-innovation bandwagon, but their approach is often lackluster. (Would you like us to produce the next-generation widget in taupe or fuchsia? E-mail us your vote. It’s your choice!) A nod for best practices goes to Threadless, a Chicago T-shirt manufacturer. “They’ve really nailed it, with a solution that’s both simple and elegant,” says Ben McConnell, a consultant who writes a blog called Church of the Customer.

Using its website and various company-sponsored blogs, Threadless has built a fervent online community dedicated to underground T-shirt design. Threadless.com now has 500,000 registered members, up from 350,000 in 2005. Members submit T-shirt designs. Then the community votes on its favorites à la American Idol. Each week, Threadless executives choose a few winning T-shirt designs. Those styles are produced, then sold back to the very people who conceived and voted on them in the first place.

Founded in 2000, by college dropouts Jake Nickell and Jacob DeHart, the company is profitable and its revenues grew to $12.5 million last year.

To encourage members to submit designs, winners are paid $1,500 plus a $300 merchandise credit. The odds are long: Over the company’s seven-year history, 200,000 designs have been submitted, but only 1,000 have been chosen as winners. Recently Threadless added a critique section to its site, meant to keep repeat losers from growing discouraged and taking their T-shirt business elsewhere. With the critique section, it’s possible to submit a work in progress and get feedback. Now someone can participate in the Threadless community without having to enter the bruising competition.

Winning shirts are produced in limited runs of about 1,500. So far, every winner has sold out, and top sellers have gone back to the T-shirt press repeatedly. Among the all-time favorites: Communist Party (featuring a sketch of a drunken Lenin and Stalin) and a shirt bearing the enigmatic slogan, We’ll be safe here in this dark creepy barn.

Threadless’s top brass don’t automatically produce the shirts that receive the highest scores; they reserve some measure of editorial control. They reject designs featuring copyrighted material such as cartoon characters. They have also created a simple computer algorithm that identifies designs that received a preponderance of 0’s (the lowest score) and 5’s (the highest). Such a love-it/hate-it response suggests that a T-shirt will provoke controversy. And as everyone knows, controversy sells. “It’s not really a gamble for us,” says Jeffrey Kalmikoff, 28, Threadless’s chief creative officer. “There’s no real guesswork involved. We ask people what they want. They tell us. We give it to them.”

Sounds so simple. It almost makes you forget that becoming a company known for great service takes planning, persistence, and at the end of the day, the hard-earned goodwill of your customers.