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I've been thinking a lot lately about what I want to do with False Start in the future. I have a few friends who are artists and one of them mentioned recently about wanting to publish a little book of her work. Ever since then I have thought potentially working with her to publish her book, but I don't know where to begin.

I am aware of Blurb and Lulu, but I am wondering what small press/zine publishers like Microcosm use to publish their books. I feel like Blurb and Lulu are more for self-publishing. 

What kind of contracts/business deals would be necessary for publishing the work of others? Has anyone else ventured into this territory before?

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On a previous posting, Joe mentions 1984 Printing (my zines are printed there too) and eberhardtpress.org.

Lulu and Blurb are not good options.
Here is a good blog that reviews some print-on-demand companies.
I think it probably depends a lot on what sort of print run you're going to do. A big benefit of something like lulu is you can get one book at a time as people actually pay for it. With the kind of run you'd get from most publishers in order to get a good price per book, you might end up with a lot of books And then it's kind of about how many books you think you can sell and how big an upfront payment and financial risk you can afford.

It seems like it might make more sense to start with publishing others' work in zine format, and then considering doing books.

Doing something small, and working with a friend, I don't think contracts are really necessary. I do think you should have a clear agreement with your friend though. Who puts up the money to get it made? Who sets the price? How is the profit divided? Does the artist start getting a cut of profit before the expenses are paid back (if the publisher fronts the money)?
don't go print on demand. What you gain in convenience, you lose in quality.
Thanks for the tips & advice everyone! This is still something that probably won't happen for a good while, but these are great things to think about.
I think there's plenty of alternatives to 'going to print' in the traditional sense. And plenty more affordable ways - and probably better ways in getting yourself out there. I ran my very first issues of my magazine as an emailable pdf file, that's easy to attach and forward and all that malarky. But now with the power the iPhone app, and the iPad, the format of the 'magazine' is changing. If you want a fresh alternative to the traditional 'print' thing, then you could do an interactive iphone app of the publication, or indeed for the ipad format.

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