Saturday, September 17, 2011

Appearances can be deceiving.

Appearances can be deceiving. I'll often have a customer tell me how well another store is doing, but when they tell me why, I just have to shake my head.

Some of the indicators they are using to me actually indicate the opposite.

From inside a small business, it looks very different.

If you understand the metaphor of the Tortoise and the Hare, you need read no further.

(Note: I'm not saying I'm any smarter than these other businesses -- I made all the same mistakes, but because I didn't feel like I had any options I hung on to my business for dear life, and thus survived learning the hard way.)

O.K. Let me tell you about five businesses. Let's assume all of them start with 4K in overhead, including a payment for themselves; sales of 12K; and a profit margin of 50%.

So all these businesses start with an extra 2K.

The First business takes this money and fixes up their business. They get a state of the art Point of Sale system. They get new carpets and fancy fixtures. And so on.

From the outside, they appear to be prospering.

The Second business takes the money and buys a new car, new business clothes, goes on business trips at the drop of a hat, installs a full-time manager.

From the outside, they appear to be prospering.

The Third business takes that extra profit, and lowers their prices and rewards their customers.

From the outside, they appear to be prospering.

The Fourth business expands. They take over the space next door, or they open a second location.

From the outside, they appear to be prospering.

The Fifth business takes half of the surplus and buys more inventory. Since he had more than 60K in inventory, a thousand a month is barely noticeable. He sets aside the other thousand for a rainy day.

From the outside, it doesn't look like he's prospering.

Then comes the day when sales take a dive. And that DAY ALWAYS ARRIVES sooner or later.

Which of these businesses is going to survive?

Yep, the one that looks like they weren't doing much of anything.

Of course, no business is just one or the other. We are all a mix.

But we all have the same basic fundamentals. Location, overhead, employees, cost of goods, etc. etc. Those fundamentals can't be got around.

1 comment:

Anonymous said...

Don't fret dunc, who else in you competitive chain in Bend is will to work for free, with no employees and minimum wage forever?


Problem is as you know most biz in USA fails within 3 years. Money run's out, but mainly 'fun runs out', gets fucking boring, but then there are hare's like you that just keep running like the everready-bunny.

The new biz is what the BULL promotes and you list, USA loves folks that 're-invent' themselves, of course its the same old bend-whores putting on another color of lipstick.

But ahh the fun, the jealousy and the press, ... how long will they last. What do they really get at the end?

Like here in Asia, even if you could find a 'successful biz' one that made money, and had good customers, you would have a 100 guys on the street copying you with in day's. Most BIZ is NOT successful, most is mundane poverty, such as you have enjoyed for years. The beautiful become very weary of loans, and debt, and poverty after a few years, make a gubmint job look very nice.
Especially if you think about retirement. I remember long ago say back in the 1980's most of my friends who were Mexicans that had the best restaurants in PDX all quit and went to work for TRI-MET. Why pray tell? Cuz these guys figured out that they could put in 5 years and get a retirement. Put in 5 years in a small biz, and what do you get? Most likely a pile of fucking debt.

Don't fret dunc, nobody can spend 30+ years in poverty running a biz, you have no competition.