Thursday, October 4, 2007

The thing that has interested me the most about the explosive growth of small business in Bend, is how do these new businesses know how well they'll do? I mean, no one knows knows, but how can they even guess?

It's probably the most important guesstimate they'll make -- as accurate as possible an appraisal of the level of business they are likely to reach, as accurate as possible a guess of their customer base.

When I bought Pegasus in April of 1984, I'd worked here for 4 years, I'd managed the store for about a year. When I took home all the information, overhead costs and loan payments and the cost of goods, and worked out a sales level I would need to get to make even minimum wage, that figure came out at twice the level the store was actually doing.

But because I'd worked and managed the store, I knew that the potential was there. I knew the store had been stripped of inventory several times, and that it would take just the slightest inventory push and show of faith to make it work.

And I was exactly right. In fact, sales doubled overnight.

In opening 3 other locations, I had to make similar guesses, and in each case I slightly underestimated the level of sales.

When Linda and I opened the Bookmark, I had a base figure in mind that I thought we would do, and sure enough, that's what we did.

This wasn't luck, it wasn't wild guesses. It was knowledge of the marketplace, long-time residence in the town, research.

I believe I have a good inner compass on these things. I trust my intuition. But that intuition is based on lots of experience and knowledge in my field.

I can't imagine moving to another town, opening a business where I had no experience. I think the odds of getting it right are pretty small.

That's why I think Bend has lost perspective.

I'll give you an example. When I bought the store, we probably had 50 comic subscribers. Over the next 10 years, this base of support slowly but surely increased to about 100. I would gain a customer, lose a customer, gain two, lose three, gain four, lose two. That kind of growth.

Suddenly, in 1995, I had 250 subscribers. Another store in town started selling comics and he also had subscribers. I figured there were two possibilities -- either that I had the 250 true readers or that the rest of the newcomers were fluff, doing it because their friends were, because it was cool, because they thought they could make money. When it all imploded a year or two later, the base went back to -- you guessed it, 100.

When we opened the Bookmark, I had in mind a base figure, which we immediately achieved, and a pie-in-the-sky figure that 4 years later we are nearly approaching. This kind of estimate takes perspective, intuition, knowledge, and experience. So on a scale of 1 - 10, with 10 being maximum potential, we started at about 3.5, and have reached 8.5 after 4 years.

If I had to make a guess about Bend, I'd say that retail was built to a level of, oh, say, on a scale of 1 - 10, maybe a 25. Yep, about two and a half times the maximum potential. I doubt very much we'll even get to a 10 in real sales. We just lost perspective, all the newcomers brought preconceptions that just weren't realistic. We are going to see a whole bunch of businesses go down the tube.

Why should I not trust my instincts now? I've lived in Bend my whole life, and had a business in downtown Bend for 27 years. I've opened and closed other businesses. I think my perspective is pretty accurate. Compare Bend to towns with twice the population, with industry, with interstate highways, with colleges, and you know Bend has gotten too big for it's britches.

So how do these new businesses know how well they'll do? Since they just moved to Bend, since they've either never run a business before, or haven't had experience in the type of business they open? They don't know. They have no perspective. They don't know the base level of business; all they've seen is the fluff.

I'd bet, right about now, a bunch of new businesses are starting to get a glimmer. There is a chill in the air, and ain't just the temperature.

3 comments:

IHateToBurstYourBubble said...

Ahhhh Duncan... pretty soon you'll be lumped in with the Perma-Bear types... "part of the PROBLEM, not the solution", and all that.

Gotta love it. You try to be realistic with people, and give them even a tiny glimpse of the *possible* downside given a veritable lifetime of experience, and you're repaid with vitriol.

Duncan McGeary said...

But I think I'm an optimist. But my optimism takes to form of thinking I'll figure out a way to get through the tough times, not that there won't be some tough times.

Really, every store owner needs to ask himself -- what do I do if business just goes south for a month or two or a year or more.

9/11 encompassed a 30% drop in sales for three months. Are you prepared for that?

Are you prepared for months of snow?

Are you prepared for the worst?

An optimist thinks he's ready....

Duncan McGeary said...

I've become more bearish about business in the last month. I really thought it would take longer for the housing thing to affect business.

If we're lucky, we might be able to get through Christmas without a big downturn in spending, but I'm thinking even that unlikely.