BrainTrust Query: Six Sins of a Startup Retail or Franchise Business
Through a special arrangement, presented here for discussion is a summary of a current article from the Retail Doc blog.
I had come to Charlotte to help a business owner considering expansion. We drove around and she showed me a location down a side street, on the back side of a grocery store with limited visibility. She told me she expected to be doing $3000-4000 per day.
“Why is that?” I asked. She replied, “Because the competitor across the way has a line out the door day and night.”
That’s startup business Sin#1 – Unrealistic expectations. You’re not your competitor.
Sin #2 – Undercapitalized. When the budget is created, you have to expect cost overruns and delays. You should still have at least six months of money to operate the business. Oftentimes startups run so close to the rail that if something happens, they don’t have the money or credit to get by. That means they open their doors stressed, looking at customers with do$$ar signs in their eyes. So needy for sales, they often miss on what should be the easiest — customer service.
Sin #3 – Not taking it seriously. “Build it and they will come,” only worked for Kevin Costner in Field of Dreams. You can’t assume the world will beat a path to your door. You must know who will buy your stuff before you open, not when you struggle to keep your lights on. A franchisor can cut your learning curve but it’s like buying an expensive Ferrari — it’s still up to you to drive it.
Sin #4 – Impatience. This dovetails into #2 but it is the disregard for a well-trained crew that ultimately shoots many startup businesses in the foot. Why? With no marketing in place, untrained staff or lack of consistency of product, customers might well flock to your Grand Opening but they won’t return. They’ll tweet about the bad experience, Yelp about it and Flame on Facebook. In the long run, you will have torched your own neighborhood. Remember: bad news travels fastest on grapevines that have soured.
Sin # 5 – Picking location by price. I met a Jack in the Box location scout and he told me he was always amazed when a franchisee asked where they should locate, the scout told him and the owner went somewhere else. Why? Because they would tell themselves with the 1/3 savings in rent, they could do 1/3 less business and be at the same place. My take: maybe. But there’s a reason rent is cheaper; it is not in demand. You never want to be 100 feet from success and, once you sign a lease, you’re stuck for a very long time.
Sin # 6 – Promoting on price. Yes, trial is important, but adopting promotion-based marketing from the start means you’ll rarely, if ever, be able to get full price for anything. So you become the generic off-price store instead of the new one that will surprise and delight because of your people and your merchandise.
These are by no means all the things that frequently go wrong in a startup but they have a common theme: leaping before you know how deep the water is.
Discussion Questions: Is now a good time to start a retail business? How can individuals launching a retail business avoid some of the pitfalls that derail startup ventures?