BREAK YOUR BUSINESS DOWN INTO SIMPLE PARTS
Alex made a living as a textile designer but wanted to be involved with his true love: running. He had been a competitive runner through college but earning a living took him in different directions. He now designed fabrics for home furnishings using computer aided design and digital printers. Alex saw the opportunity in running wear as he hated what the big companies offered. He liked the technical fabrics with the moisture wicking and soft to the touch. But, all the clothes they sold were black, red, neon yellow and blue. He wanted to design retro-looking running clothes onto a technical fabric so consumers could get the best of both worlds.
Alex broke down the business into create, make, sell and tell. Alex could design the prints on his computer and the digital printing could be done with the folks from his day job. He contacted a sports fabric company to check lead times and pricing. Most importantly, Alex talked to his running buddy Jon who worked in senior management at a large running retailer.
Alex ran the numbers to see if he could make small run technical running gear. His margins were lower than usual, but he would not have to carry so much inventory because product could be made to order. Alex and Jon agreed to try the product in 3 stores to see if the product sold. Maybe this could work.
Don wanted to do something more. He worked at an ad agency after working for a bicycling magazine. He had covered cyclocross racing, which is the fast growing segment in bicycling. He had a personality conflict with the magazine owner and left the magazine. But, he still loved cyclocross. He saw that other bicycling segments- road, triathlon and mountain biking - had social networks which made a living through selling online advertising.
Don broke down the business into create, make, tell and sell. First, he asked a co-worker how much building a website would cost. He called around to freelance bicycling journalists to see if they would have any interest in writing articles at a friends-and-family rate until the website grew.
Don contacted regional cyclocross race organizers to gauge their support. Finally, he contacted his friends at the bicycle and accessories companies to check what rates they would advertise on a cyclocross-dedicated website. Don put together a budget and looked into his own finances. He thought he could start the business as a hobby and then he and his girlfriend, a police officer, could live off her salary for a while. Once he thought through the whole chain, he thought it may be worth a shot to create a social network.
Margaret considered opening a high end housewares store in her home town. She wanted to sell to affluent tourists. She mapped out the retail process. Margaret could use her previous vendors to get favorable terms to purchase product.
She would cut a deal with her uncle who was in the process of closing a general store at a good location in town. She offered 30% of her business for 2 years free rent and $60K in working capital. Margaret would find employees who were moms that found it hard to find jobs.
When she put a budget together, she realized she would have to mark up product 2.2 - 2.5 times, or 60% gross profit margin, to make the economics work. She knew that those price points wouldn’t work for locals but would work for the tourists. She also considered that the tourist season was only nine months long. After mapping out the business, she felt she had a good shot at having more money come in the door than go out.
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