Gordon Woolf suggests a slow start using market stalls and the trendy "pop-up store" might be the better way
It was a casual discussion: An acquaintance was unsure of his work prospects as the company he worked for had put off several people and rumours were that some more jobs might go. He told me that what he and his wife would really like to do was to start their own business.
They had got as far as a talk with an adviser at their bank and he had worked out what he thought they would need to start a retail business in a field they both knew something about, basically what had been a hobby for many years.
But the more he delved into the idea, the more money it seemed they would need: advance payments for rent, the cost of fitting out a shop, deposits with utilities such as the electricity supplier, and the few suppliers he had contacted were happy to provide the products, but only with advance payment and sometimes with substantial minimum order quantities in order to get the discounts they knew they would need to be competitive.
The bank was actually quite happy to provide a loan, but only if they secured it either with a second mortgage on their home or renegotiating their whole mortgage. Despite house prices dropping slightly in the area they lived (in part due to the job insecurity which was leading him in this direction) they had been paying off their loan diligently and had a good equity.
The stumbling block was that his wife was not prepared to risk their home on what seemed to him to be a project destined for certain success.
He was more than a little surprised with my reaction: "Good on her!" was the Australianism I used.
I did tell him the old story about a lot of new businesses failing in their first couple of years and of only a small minority still being around after five years. I did temper that with the added information that many of those were not really failures; they were ideas that people had tried and closed because they did not work out as intended, or even because family circumstances changed, but where all the bills had been paid. To try an idea and get out without any debts is not failure, at least not in my eyes.
The problem with this couple's plan was that they were intending to invest far too much, and being encouraged in that intent by their loan provider.
My suggestion was that while he was still at work, they should start small, with a stall in a couple of local weekend markets, and start a web site (perhaps using eBay) and hand out flyers and cards wherever they could.
As the business grew, as I was sure it would, he could take some of his accumulated holiday and long service entitlements to spend time seeking the bargains that are always around to people who have cash to pay for them. Even large wholesale suppliers will often be generous in interpreting those quantity discounts for someone who is prepared to pay cash. Maybe they won't split a carton, but you can ask for that 5-carton rate to apply on the single carton order if you are paying on the spot. (It could just be the few hundred dollars that means they can avoid going into overdraft to pay their four-figure power bill due tomorrow.)
This does mean that the new business needs a reserve of cash for these opportunity purchases. That cash can quickly disappear if it is going to pay the interest on loans.
Our budding retailers could also consider the latest trend for "pop-up stores". The very trend which has affected this couple's house value could also mean that there are empty stores in their nearby shopping areas. Landlords have become accustomed to insisting on long leases and ever increasing rental payments, even if they have to offer rent-free periods and subsidised fit-outs to get them, but those in strip shopping streets in particular may be willing to accept a rental for a few weeks with options of renewal. Landlords are by nature optimistic; they always think the market will pick up and their premises will be let long term in the next week or two, even if it has been empty for a year or more.
It is amazing how good a store can look with a few tables and boxes covered in crepe paper, but do get a lawyer experienced with retail leases to check out a lease before you sign it: that will be a good investment. You'll also find some good display equipment available secondhand, and watch the auction websites for the stock from failed businesses that is still effectively new. It could also be worth asking around retail stores. I found an Aladdin’s cave of rescuable display fittings in a shed behind a local department store.
It seems that "instant retail" is fostering other businesses to cater for the trend. I found a business in that name which hires display equipment and an online search for pop-up shop brings all kinds of entries from blogs to services intended to link renters with landlords.
So, my advice for the would-be new business entrepreneur is to start small, and start cheap. Put what money you have into finding good reliable suppliers of goods at prices which will give you the margin to gradually build up your business. You may need some good luck but I would suggest that you do not start with a loan.
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