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Every Friday, I post a small insight into running Curio City and/or Blue Hills Editorial Services. My most recent posts are directly below. You can also start with the first post, or use the subject labels to the right to home in on particular topics. Feel free to comment on anything that interests you.
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Friday, January 25, 2008

The First Shall Be Last

And now the first is last: Curio City Offline, or opening a physical store, was my original plan. The web store was my wife’s idea when I started out too late to open a store for Christmas 2005. If I go with this future, the deadline for opening is Halloween 2008 (ideally closer to Labor Day).

The advantages are simple enough. I’ve worked in or managed so many stores over the years that there isn’t much mystery to it. I don’t mean to diminish the challenge, but I’m confident that there’s nothing I can’t overcome. The learning curve is gentle compared to web technology. Conventional businesses make bankers smile; I can secure a loan for a store much more easily than I could pitch my nebulous e-commerce plan to a loan officer. All of my hand-wringing about getting Curio City out of the house is automatically solved with a store as the base of operations for the web business. In-store shoppers are a more captive audience than online shoppers, which means less competition and better markups. Cash sales will slightly reduce my overall payment processing costs. Local advertising is comparatively easy – a few newspaper ads, a radio spot or two during the holidays, the occasional sponsorship or community event. I would be able to sell heavy, bulky items that I currently won’t consider, being a shipper. Opening additional stores and building a retail empire is a well-trod path to riches – it could eventually get me into the Berkshires for a few months a year, if I had a store there. With all of these pluses, opening a store should be a no-brainer, right?

Not so fast. Let’s go through the drawbacks.

1. The process of finding retail space and configuring it, then fixturing and filling it, is an enormous job that I might not be capable of doing by myself. I would need many more products than I carry now, and in greater quantities, and attractively displayed with a more coherent presentation. In-store shoppers are a different demographic than I’ve been cultivating; some of my top-selling web products will be dogs in a store (and some of my online dogs, such as Sea Stones, might sell well in person). Even if it goes smoothly and I make wise choices, it’s going to take a long time and an incredible amount of work. Most people who do this have help. I don’t even know how to start, and I’m completely on my own. Do you find space before you seek financing?

I’d have to decide immediately whether to create a large, slick store with full staffing, or start with a small mom-and-pop (just pop, actually) approach. The slick store requires heavy investments in lighting, signage, carpeting, paint, security, display materials, brand-new high-quality fixtures, and advertising. It should probably be professionally designed. It would need to be in a high-traffic, high-rent location to justify all of that, it would need a substantial payroll right off the bat, and it would need to rake in big bucks right from Day One. In Massachusetts, businesses with more than five employees have to offer health insurance, so I’m limited to hiring four people at the most. If the cashflow doesn’t materialize immediately and hold up throughout the year, the slick store will die fast. There is only one chance to get it right and very little breathing room to correct mistakes or change directions. OTOH, the potential payoff is substantial.

The mom-and-pop would require smaller investments, and could work in a second-rate location with a tiny staff (me, and possibly one part-time helper two months out of the year). It could hang on while I learn the nuances of the business. Its death agonies would be slow enough that I might be able to change direction before it’s doomed. It’s the old question of risk vs. reward. The slick approach is the way to go if I want to establish a strong presence, expand quickly, and shoot for big money. The mom-and-pop approach is more in tune with my personality, but it’s at risk of stagnating and tying me down indefinitely without ever paying me very much. My web strategy is too seasonal and specialized to transfer to the slick approach, so I’d have to draw a different type of customer with untested new merchandise categories. It’s probably wisest to start out with a mom-and-pop, get the kinks out of the whole store thing, and then open a slick store two or three years later – as soon as the starter store shows a profit. That would continue my bootstrap philosophy of using one modest success to finance another step, rather than betting everything on one roll of the dice.

There’s no guarantee that I can get the loan I’ll need, either. My experience developing Curio City Online will allow me to write a very strong business plan. Still, credit is supposedly tight and bankers are newly skeptical. I won’t put my house up as collateral. Persuading a bank to loan me ~$60,000 without a lien on my house will be tricky. OTOH, I think I’ve got almost that much open credit on my Amex and Mastercard. I could theoretically charge the whole thing!

2. How do I maintain my web business while I’m working at full capacity to open a store? I already work fulltime from Halloween through New Years, and at least halftime the rest of the year. My minimum necessary daily chores – filling and shipping orders, recording deposits, paying bills, reordering and receiving merchandise, answering e-mail, processing paper mail, etc. -- takes about two hours a day. Would I have to suspend Curio City Online while I’m creating Curio City Offline? It would be foolish to jeopardize my profitable and growing web business through inattention or conflicting priorities. As I write this, Curio City Online is enjoying its best non-Christmas month ever (thank you, Panther Vision!), and I have not yet begun to push hard for more progress. How can I seriously think about putting this on life support? If nothing else, the web cashflow would help cover a store’s first faltering steps and put a wee bit of money in my pocket while I work for no salary.

Once I get past the opening – and it’s very hard for me to think beyond that tremendous milestone -- how would I integrate the two businesses? Sunshop doesn’t interface with any point-of-sale (POS) software, and its creator is unaware of anyone who’s modified it to do so. Would I have to keep the web and store inventories physically separate? How would I handle the financials? Would I need separate Quickbooks files? Would my POS system replace Quickbooks for the store? I think I’d have to either run them as separate enterprises, or completely redevelop the website with all-new software, undoing a lot of the effort that I’ve invested over the previous two years...and that revives my longstanding trouble finding a new developer. If I doubt that I can run a store by myself, how can I possibly run a store and a web business? Unless this is all structured wisely, it will add considerable new bookkeeping requirements at a time when I need to maximize efficiencies.

3. As soon as the doors open, that store has to be staffed all the time. Retail plazas typically specify minimum operating hours, and they don’t allow closing for vacation. Most new stores employ not just the owner, but his family as well, before they can afford to hire help. I don’t have a family; my wife already keeps far too busy to help out substantially. During the first year or two, I would have to spend at least six days a week in the store, 10-12 hours per day, 52 weeks per year – most of it alone. For the past few years I’ve enjoyed almost complete control over my schedule and the structure of my workday, even when I’m very busy. Running a store takes that away completely. I do not want to be a slave to a store. The business will certainly fail if I’m chained to the cash register every day. This is by far my biggest fear about opening a store. There’ll be no summer Berkshires vacation. No weekends and very few holidays off. No more Saturday afternoon wine tastings. No more cooking; if we go back to restaurant and takeout meals, I’ll gain 50 pounds like I did last time I ate that way. No more vegetable gardening or yard work or snow shoveling. No more housekeeping (what little I do). No more workday errands. No more anything except working and sleeping. Such a serious decline in my quality of life would make me deeply unhappy – especially if I’m only drawing a salary two months out of the year. Don’t laugh; it could happen.

Well, that's just too bad, Ken. That’s been the lot of working people for centuries: either you have time, or you have money, but never both. Maybe I just need to suck it up and put on the harness again. But the fact that I already resent this store’s intrusion on my life bodes ill. I don’t even like stores. I never shop offline, myself. And I should remind the Reader that I’m pushing 51 years old. My health and vigor will not hold up forever. If I have to staff my own store by myself, sick days are not an option.

4. The overhead is overwhelming and my forecasts don’t add up. A friend who owned (and lost) his own store firmly believes that you can’t make it unless you own your building – otherwise you are working for, and at the mercy of, your landlord. Rent for a tiny store in a nice CBD location (my first preference) would run $3,000+ per month. For perspective, that almost exactly equals LY’s gross sales! Even a small store in a marginal strip mall is going to cost upwards of $1,500 per month. Being open to the public makes insurance mandatory, and I’m sure that will be expensive. I can always forgo paying myself if the business isn’t there, but payroll is also mandatory if I have even one employee. There are merchants association fees, maintenance costs, cleaning/trash removal, utilities, taxes, licenses, permits…the list goes on and on. Like the engineer who concludes that the bumblebee can’t fly, I don’t understand how any store can cover all these costs – but obviously they must. There are stores everywhere, after all. The real question is whether I can learn on the job before going bankrupt. I didn’t go ahead with Curio City Offline until my spreadsheet convinced me that it had a chance of breaking even. I won’t open a store without a similar level of confidence. My projections indicate that I need to gross over $350,000 per year before I can even think about hiring an employee, and that can’t be right; that’s way too much business for one person to handle. My first step would have to be obtaining solid cost numbers, instead of the educated estimates that I’ve used so far, and figuring out why my budgets look so gloomy.

5. I would once again be dealing personally with the public. Nobody will ever mistake me for a “people person”. I like being faceless and dealing with the world through email. A store owner becomes known to lots of people, and might even have to participate in his community. I’d hate that. I especially dislike children, and my type of merchandise is going to attract them like maggots. As soon as customers start walking in the door, I have to worry about shoplifting, breakage, damage to the store itself, liability…even robbery and personal safety. My focus to date on small, lightweight, high-value products is going to make theft deterrence a big challenge. The bigger and busier the store, the worse the problems from the plague of people are going to be.

6. The stakes are high, and I’d be working for free. Failure would lead to bankruptcy and dissolving my corporation, and the odds of success seem slight. None of the bookstores that I managed ever earned profits, because mall rents and staffing were too expensive. Chain stores are a pyramid scheme whose purpose is to pay the salaries of the non-productive people in the home office and generate enough cash to keep expanding. The only profitable store that employed me – the Museum of Science shop – didn’t pay rent, had a huge captive customer base with no competition, and used a lot of volunteer labor. No brand-new store ever pays its owner a salary right off the bat; I might very well have to work without pay (beyond what the website brings in, that is) for a year or two. My (admittedly flaky) projections don’t allow for payroll until the debt is paid off.

Timing compounds the risk. We are entering a recession of unknown severity and duration. At this writing, it has all the appearances of a panic. We old folks know you just hunker down and wait these out; recessions are as self-limiting as are expansions. However, investing the last of my savings and going into debt while consumer spending is declining does not constitute “hunkering down”. Granted, recession will cripple my sales regardless of which path I choose…but it imperils this most expensive of possible futures the most. On the plus side, interest rates will soon reach historic lows, and rents will probably follow. This summer might be the best possible time to obtain a business loan and sign a lease.

And now I’ve come full circle without a decision. This bet-the-company turning point will determine the trajectory of the rest of my life. So I’m going to commit myself to choosing a future by the end of February. Why then? For one thing, my remaining startup money is locked away in bank CDs; the first one matures in mid-February. Will I invest that money in the web (Curio Metropolis), put it toward opening a store, or keep it in the bank (Steady As She Goes)? By the end of February I’ll have a better idea whether the conservative Steady approach is realistic, as well as how severely the economy is tanking. The longer I put off deciding, the better informed that decision will be...yet, with the tremendous amount of work that opening a store would entail, I am going to need a solid six to seven months before Christmas spools up again.

Seven months. It doesn’t seem like much.

Next week I’ll boil this all down to bullet points, and add any new thoughts that come to me.

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