“I can’t afford to sell a west side home for that! But what a fantastical year for pizza by the slice!” – The Simpsons
It’s always a good idea to start a business to take money from people who say, “milady” because they often cannot defend themselves in hand-to-hand combat. Take their money and buy yourself something nice.
The Mrs. and I have had a bunch of business ideas – our Internet pizza by the slice company (we don’t deliver, you have to come pick it up) wasn’t exactly a great hit, but we sold it for $50,000,000 in Alta Vista™ stock that we couldn’t sell for three years. Easy come, easy go.
I kid. This didn’t happen to me, but it did happen to a friend of mine. Don’t worry – he’s been the CEO of multiple companies and has vacation houses in three states.
But one time The Mrs. and I actually came up with a real business plan. We’d read an article on a website back in the day (I actually don’t remember which one – it was a site I used to go to back when Google® was new) about a PC Bang in San Francisco. The concept was that the business rented computers by the hour and sold snacks to gamers who were all connected by LAN (local area networks) to play against each other or as an organized team against other gamers. The name may sound dirty, but it really was a South Korean name that just never wore off. (South Koreans are big gamers.)
The Mrs. liked to play games, and she and I reckoned that a great way to make money would be to take it from chain-smoking gamers – we had e-mailed the author of the article and he told us the concept worked well in San Francisco, but the gamers were amazing at smoking – even teenagers. Since even back then smoking was a thing only demons without souls did inside, the smokers would take a break from killing virtual people to smoke outside.
Thinking this would be a good idea (the PC stuff, not the smoking), The Mrs. and I priced local strip mall rents. We had a place in mind that we wouldn’t even need to retrofit. We put together a business plan. We got quotes on computers, counters, and computer furniture. We got pricing on cash registers and contacted candy, snack and frozen foods retailers. We put together a business plan. Front to back, thirty pages. Included demographics. Everything. The place in the strip mall was awesome – it was right next to a movie theater. Catch the nerds after the Star Wars, right?
I had to work the day of our appointment, but The Mrs. took our business plan and went to her bank (Bank of America) and asked for a small business loan. Hey, the government guarantees that stuff, right? They give them to everybody, right?
No.
They didn’t throw her out because she was a lady. They threw her out because our idea was stupid.
She fumed when she got home.
“I’m going to close my checking account there.”
I’m sure they were upset, because she had exactly $17.43 in her account, plus a box of lint. They even paid extra lint each month on her lint deposit. “Oh, Mrs. Wilder, we would have to shut our doors if you took your $17.43 elsewhere. And here’s your lint.”
I mean, we had cash reserves of $5,000 at that time. Why wouldn’t they loan us a measly $55,000 for an unproven idea?
Well, when I put it that way . . . it sounds stupid. And it was stupid.
See, our problem was that we talked about businesses we thought we would like (I’m not a gamer, but I like candy).
Occasionally, we see some fool with passion and money start a business we had talked about. And then the business would close within about six months.
After careful observation, every business we could be passionate about closed. The successful businesses were ones we wondered “how is that place still in business”?
I decided to observe businesses. Which ones were successful? Which ones lasted five years or more?
The biggest place to occupy was the middle. Stuff everyone needed. Milk. Eggs. Bacon. Quality footwear. Panty hose. PEZ®.
But the competition has scale here. Wal-Mart®, Target©, and the large regional/national grocery stores occupy this niche. And competing against them on price will destroy you. Everyone needs what they sell, but they have relentlessly focused on cost reduction for decades, optimizing supply chains. The result? Cheese has never been cheaper. I can get sushi at midnight in any small Midwestern town. Not great sushi, but Wal-Mart® sushi. And it doesn’t cost all that much. And I can get decent wild salmon anytime of the year.
What about the rest? I know that people sell all sorts of niche products – how do they manage to do that?
Mainly by not making much money. Do people make millions on their YouTube© channel? Yes. If their name is Pewdepie. But if you are in the top 3% of YouTube® channels? You make less than $16,000 a year. Again, not bad posting goofy videos to the Internet, but it shows that the vast majority of people make no money on YouTube™.
And it’s the same thing with the people that sold me a T-Shirt that vaguely references a movie from 1983. (No, you shouldn’t send your kids to Camp Crystal Lake.) They would never make money off of just that one t-shirt. They have to find lots of different shirts like that to sell.
I have no idea where this came from – I found it floating on the Internet. This is a t-shirt I need.
Another example was a local business near where we live. They sold bicycle stuff from 9am to 5pm to the locals (I bought three bikes from them), but their real business for the last 20 years was selling stuff online. They would import cases of, say, bicycling jackets manufactured in China. Then they’d sell them online. Ironically? I talked to the owner and they sold lots of products back to China – the stuff they sent to the United States apparently was only available in the United States, and they had to have it shipped back to them.
But now the bigger bike shops on the Internet have taken most of the market share – the local bike shop is closed. The long thin part of the market they operated on disappeared.
So where do you aim?
With a business you need a broad base of consumers.
- You need a lot of people interested in your product. Our PC Bang obviously didn’t meet that.
- The product should be a low cost product. Ours would have been low cost, but still would have needed hundreds of dollars in business a night.
- The market (ideally) should be an unserved need or a cheap fun thing.
Good examples of this? Fidget spinners. Somebody made a zillion dollars off of those.
When the Japanese first sent cars to the United States? They didn’t send Acuras®. They sent cheap sheet metal things that had great gas mileage because the engines were nearly wind up. And they sold like fidget spinners.
What ideas suck?
I was in a business dinner with a really rich guy – it was our company and his. We were at the nicest restaurant I’ve ever been to – before or since. It makes sense, because the contract we were signing was $270 million. And that was $270 million American dollars, not that wrapping paper they use in Canada. The owner of the firm talked about how the food was wonderful in Houston – and he had tried to create a world-class restaurant in the (smaller) Midwestern city where he lived. He said he had lost a million dollars trying to create an awesome restaurant. So, super high quality is probably not the best way to go when starting out. Think cheap hamburgers. But for a million dollars he had great food for a year!
Who can get away with ludicrously high prices? Apple™. Celebrities.
Think:
- Beats® headphones. $45 worth of components for $34,500 a pair (I couldn’t tell you – I buy $12 ear buds).
- Whatever stupid crap the Kardashians are selling this week.
So if I were opening a business? I’ve learned a lot. I’d avoid borrowing money early on. I’d avoid everything that I love –passion clouds judgement. I’d look for good deals. My passion would be focused on creating great values for other people – and I’d maybe figure out that Internet pizza by the slice . . . . Maybe I just need an app for that? People buy anything off their cellphones, right?
