Starting a business...

August 6, 2005 10:03 AM

Tips on turning a business idea into reality?

There's a part of my city which is filled with runners, but has no running store. I think opening one would be a very good idea but I have a few problems. While I have experience working in retail, I don't have experience running a business. Also, my personal credit history is rather spotty. Is it possible to overcome these obstacles an start a business? Are there any general tips for getting a business off the ground? Any particular good books to read?

posted by drezdn to work & money (11 comments total)

Since you're in Milwaukee, check out the Wisconsin Small Business Development Center. They offer classes on the UWM campus and apparently will provide free advice on your startup for as long as you need it.
posted by Hlewagast at 10:52 AM on August 6, 2005

Not to pour cold water or anything, but are you sure you want to get into high-street retail at a time when such businesses are being squeezed by internet storefronts on one side and the WalMarts of the world on the other?

Your startup/running costs are higher (rent, shopfitting, etc) than for an ecommerce outfit, while chains can buy stock in larger quantities than you, and hence more cheaply. Either way, either your prices will be higher or your profit margin will be lower than your competition.

I'm not saying forget about it, but you have to be able to answer sceptics like me point-for-point - if you can't, there's probably a big hole in your business plan.

On running a business... go take a course in bookkeeping right now. Even if you choose to drop this particular business idea, it's a really useful thing to have done. It's one of the things I should have done before starting up.

Starting up on the high street is going to cost tens of thousands; once you take the plunge and spend thousands of your own (or worse, someone else's money), you're committed and it's hard to back out. So... consider Ebay. Set up a limited company (or whatever the US equivalent is), buy some stock, churn it through an Ebay storefront, get a feel for what sells and what doesn't. View it as a combination of market research and running a business in miniature. It will give you a feel for customer service, bookkeeping, dealing with suppliers, building up contacts, etc, without giving up your full-time job and irrevocably committing you. Worst case, you have to sell your stock back out at cost, and you lose some time and effort.

If you go for a physical location, never ever rent a bad location because it's cheap. It's a horrible false economy, and I once lost several thousand pounds by making that mistake.
posted by Leon at 11:13 AM on August 6, 2005

Also, my personal credit history is rather spotty.

Finding a bank that will finance your operation is one of the most difficult aspects of opening a small business (for those who have never done it, anyway). They will require a large amount of collateral, which in your case might be impossible unless you find an affluent partner to back you up (read: someone willing to put up their house, securities, or something of worth).

There is a lot of other information that you'll need to know (location, access to distributors, labor relations, pricing, promotions, etc. etc.) and I'm sure plenty of people here will comment upon those, but one of the biggest problems I've seen with small businesses is the lack of financial awareness necessary to see if your business is feasible.
posted by SeizeTheDay at 11:18 AM on August 6, 2005

Make sure you have a lot of cash. Seriously, way more than you think you need. Lots, and lots of cash.

I think the niche makes sense. Serious athletes are unlikely to do their shoe shopping over the internet, and are also more likely to be price elastic.

But once again... cash. There are a LOT of expenses (licensing, storefront, inventory, insurance, staff, equipment, advertising,, etc) and you really need to be sure you can ride out quite a long time where your revenues aren't covering them.
posted by mosch at 12:17 PM on August 6, 2005

These guys are doing what you are talking about on the other side of the lake and in a slightly smaller market. Maybe they franchise?
posted by 517 at 2:23 PM on August 6, 2005

The most likely way to get into business without much money (I'm assuming) and a spotty credit history is to find a business partner who does have money. That, of course, presents another set of challenges - finding potential partners, convincing them that you have a good idea and the skills needed to make the business a success; working out the terms of the partnership (with one or more partners; one is certainly best); and forging a good working relationship (for example, if sales are less than projected, should you do something different or continue with your planned approach).
posted by WestCoaster at 4:33 PM on August 6, 2005

Your startup/running costs are higher (rent, shopfitting, etc) than for an ecommerce outfit, while chains can buy stock in larger quantities than you, and hence more cheaply. Either way, either your prices will be higher or your profit margin will be lower than your competition.

The profit margins on athletic shoes is really high, and Nike for one (and probably other shoemakers) simply won't sell to Walmart. They don't want 'em diluting their 'brand'.
posted by delmoi at 6:18 PM on August 6, 2005

You might be surprised at how little money you can open a store with if you're willing to fly by the seat of your pants and work harder than you've ever done before.

I started my retail store with $30,000. I think we perhaps used half that, maybe less, to get the place going. Another $10,000 for merchadise, and plenty of hopes. $10,000 wasn't really enough for merchadise in our case, so we ended up getting a loan from the bank for another $18,000 later. It was very easy to be approved for a loan for a store already in business than I think it would be for one not. We didn't even have to present a business plan.


The rate you get on any bank loan will be directly affected by three things: Prime rate, the credit history of whoever signs it, and any special discounts the government provides for small business loans. IIRC, we ended up with a ridiculous rate, about 1% (Prime minus 3% small business government program help).

The entire first year was spent squeezing every last penny like our life depended on it. We didn't even get an air conditioner for months. We would never have more than 1 weeks' worth of stock in for anything. While that would drive our customers nuts (the store was dry on stock every Tuesday) we have continued to follow this method now the store is established. No stock = no loss when the product "cools off" = no quick sale discounts = more profit! It also makes rotating in a new product take 7 days or less, which is great.

We would save on shipping by driving cars with roof racks (yes, seriously) to wholesalers and picking up items ourselves. One of the cars had a 3 foot hole in the trunk so we'd have to cover it with cardboard. Now we have an equally shitty van. Fun. Next step might be a van which doesn't explode the transmission if you use overdrive.

Getting the absolute minimum rent we could deal with and absolute smallest shop size we could work in was key. Squeezing rent down from $15/sqft/a x 1500 ft to $10/sqft/a x 900 ft was key to ensuring the dry months (and the first two or three were BONE DRY) didn't bankrupt the store. You must get a premium location with lots of exposure to start a new store unless you want to spend spend spend on advertising. We are in front of one of the most popular drive thrus in this town. Easily 2,000 people a day are forced to read the signs in our windows. :-D

Expect to draw an incredibly pathetic salary to start with. Myself and my business partner were drawing perhaps 50% of what welfare pays for the first year or so. We are now up to the poverty line. LOL. In other words, if you have even a single recurring expense (loan, cable TV, mortgage) you must end it before starting up. Get rid of it all!

Of course, how successful that will be will depend on the type of customer you want to attract. We tend to attract a mix of hardcore discount customers and well paid manual labour class.

We are lucky in that the product we sell moves best by word of mouth and is simply something someone will either want or not, very little inbetween. This means very little advertising. I can imagine that runners will require advertising -- build this into your budget! We pay about $500 a month to advertise a business card size ad in the local weekly ad rag. Popular newspaper ads of similar size can run $5,000 a *DAY*, so I'd forget about those completely. Of course, not bothering with that will probably bring in the same kinds of customers I get.

One thing you should check on is if the local ad rag will not advertise your products. It's dumb but the one here refuses to handle anything to do with satellites, even the big name brand ones. This has something to do with their parent company running a cable TV service in Quebec... :-(

I suppose it is such a vicious circle... *sigh* This day is the 2 year anniversary of the store. You wouldn't believe the sales numbers if I told you. You'd think I'm a millionaire. Alas, I live in a low cost shared apartment and am broke each month, and that's not due to spurging. It's a step up from last year, living with mom and dad, I suppose.

Still want to run a business? :-D
posted by shepd at 7:03 PM on August 6, 2005

delmoi: good point, though that leaves athletic chains to deal with. If drezdn is sure he's got a prime location, maybe franchising is an option he should investigate? (Tangentially, why are we talking about only running, why not a compelte athletics store?)

I'd be surprised if the retailer's markup on trainers was much over 100%, though.
posted by Leon at 7:42 PM on August 6, 2005

Shepd: you drew a salary your first year? Man... talk about luxury!

My first year of business consisted of paying myself $0.00, and spending a frighteningly large amount of money out of pocket. Year two I paid myself back for year one.

Starting a business is going to involve putting a lot of money at risk (either yours directly, or borrowed). Don't do it if a loss will be emotionally devastating to you. You need to be willing to look back at a failure and simply be glad you tried.

As far as books... I still haven't found one that's worth a damn. I'd love to hear if anybody else has.
posted by mosch at 1:21 AM on August 7, 2005

I'm looking into starting a franchise and was thinking about posting a similar question and asking for book suggestions...anyone?
posted by jacobsee at 4:20 PM on August 7, 2005