“This is a really intense spreadsheet!” I told Jay, another parent at my seven-year-old's school. I was meeting with him for coffee to talk about a garden art product he had developed. It was beautiful, and he made the samples himself using the craftsmanship he'd developed while getting an MFA. I liked them so much, I was really hoping we could work out a barter arrangement: He could make me one and I'd help him market them.
But that spreadsheet! It was fantastic, with several pages and pie charts and obviously a lot of thought put into it. But it was all wrong. Not because the numbers didn't add up, or anything. It was just the wrong approach to this product and a new small business.
Not only could he not find a place to sell his product with the assumptions he'd come up with, he couldn't find customers and he couldn't afford to make it happen. What should he do? Find venture funding or a business loan?
“You need to start over,” I said. “You need to start with one.”
I told him that the best way to get this small business going was to get one customer. He really only had the money to make these products one at a time. He needed to find a way to sell them one at a time, for now.
Not only did he need to get one customer, but he had to get one product, setting aside for now the thoughtful and lovely line of different options. He needed to make one thing and he needed to make it beautiful and emotional and, most importantly, shareable. He needed to get that one customer who could get him more. It was like he had a novel with a half-dozen characters introduced on the first page; they were all interesting but it was hard to keep them straight. He needed a single protagonist.
“You need to get your customers in your neighborhood.”
His product had all the characteristics that make it ideal for selling near home. First, it was very heavy and hard to transport. The materials cost was pretty high and the labor was specialized. It was something customers can wait a few days or few weeks for; they don't need to be able to bring it home from a store when they first encounter the idea. But I think this approach makes sense for products that don't fit these characteristics, too; when my friend Sarah decided to start making sculptural, unusual chocolates, she didn't start by setting up a web site. She started by getting a booth in the farmer's market (where I met her!).
Not only did Sarah get local customers who were more likely to value chocolates made nearby, she got influential customers; the people who shopped at the farmer's markets were the same ones who wrote the food section of the local paper and who were connected to the best restaurants in the city. Tourists came to the farmer's market, especially food writer-type tourists, and soon Sarah's chocolates were being written about by people around the country. Then, with the profits from her loyal customer base and the good PR from influential chocolate lovers, she opened a shop. In her story, she had the setting just right; novelists say that sometimes the setting can write the story for you. That's what Sarah was doing by selling her chocolates in the farmer's market; setting her story somewhere rich and productive.
Of course, “neighborhood” doesn't have to be literal. These two examples include products and communities where locally-made is very important and the customers necessary to make the small business work could be found nearby. But it could also be a virtual community; say, something that might sell among a certain faithful blogger community on Etsy. I know lots of women who make stylish, organic cotton and wool cloth diapers that appeal to a specific sort of mother who tend to congregate around the same “group” of blogs. It's easy to sell to this “neighborhood” by starting small.
“You need to go direct to your customers.”
Jay's idea was to sell through high-end garden shops. This was the model he was most familiar with, but given the assumptions he'd built in to his beautiful overwrought spreadsheet, commissions and retail markup and such, the final cost was unrealistic. Most small business owners who are just starting out should take advantage of the one thing they have that bigger competitors don't: a personal relationship between customer and maker.
Not only can such a direct relationship be great for the seller (in far higher percentages of the selling price going into his pocket) but it can be desirable for the customer, as well. How different would you feel about your cereal bowls if you'd met the potter who'd cast them? You might go so far as to cry if they were broken. Certainly, you'd value them more than the ones on sale, four for $9.99, from the local department store.
Sure, these customers are fewer. But if you're starting small that's okay; especially if you're keeping your “day job,” or, in the example of many of my friends and my own self, taking loving advantage of a partner who's earning an income to support you.
“You should not invest in more inventory than you have cash for.”
I'm going out on a limb, myself, with a new project: a literary magazine for parents. I assembled a group of volunteer editors and we put our heads together. I chatted with other publishers to get an idea of process and cost. I convinced people to do work based on the possibility of pay.
And now, I'm going to go out and try and get the customers. I'm not going to even call my first printer until I've made the “sales”; until I've raised enough subscriptions to pay the bill for that first chunk of inventory ($5,000 or so). Luckily, this is made somewhat easier by the presence of fundraising machines like Kickstarter and networked connections through Facebook and Pinterest. Instead of the old-fashioned way; going to conferences and direct mailing and putting ads in similar-type magazines, I can reach people directly and get their money before I put out my first product, thanks mainly to social networks. Think about it as something like what J.D. wrote about in this classic post about starting your own business: “guerrilla marketing.”
We're in an unusual, rarefied time in the history of capitalism. It's almost like we've come full-circle from the old way of setting up a business in your village, selling your unique skills to people who know you and not having to set up a huge infrastructure first. We don't necessarily have to go through the business gatekeepers who developed over the years; the banks, the venture capital firms, even the family money that set entrepreneurs who made it apart from entrepreneurs who just puttered around thinking up ideas all their livelong years. Personal relationships are valuable again; they're just spread out geographically and not always “consummated” by face-to-face interaction. Some of my partners in this project are people I've never met IRL; they're across the country and I know them through Facebook, and Twitter, and Instagram…
“Your customers need to see a person there.”
The difference between this sort of business foundation and the boom years of high-growth capitalism is that the “brand” is not the thing so much as the “authenticity.” I know I just put quotes around “authenticity,” but let's make it truly authentic (I told my friends and I tell myself) by connecting the product to the person who makes it, and not just “here is the face of a person who makes things,” but a whole story. People will buy the product for its own merits but also for the story, the realness, the fact that paying $3 for a chocolate or $20 for a magazine subscription or $300 for a garden structure will tie them to this story, will write them into the narrative.
I love to think of a small business as a story and the entrepreneur as the storyteller. And the customers? I think they're characters in the story, if you do it right. Hopefully your story has a happy ending — no — hopefully your story is a serial that keeps on getting picked up for another season.
Author: Sarah Gilbert
Sarah is a blogger by trade and a finance geek at heart. She cut her teeth on her first Excel spreadsheet full of financials at the tender age of 21, when she began her investment banking career in First Unionâ€™s Loan Syndications group. She went on to get her MBA from Wharton, work at Merrill Lynch and fall in love with analyzing company strategy and endless rows of numbers. She got into blogging as a marketing strategy and the blogging took. She now is a freelance financial and (award-winning!) literary writer, working in between baking bread and finding socks for her three little boys in her beloved 1912 Portland, Oregon, home.
Sarah's even-more-personal blogging about being an Army wife, parenting, food, biking and life can be found at urbanMamas and Cafe Mama.