Submitted by Dmitri Davydov on Mon, 2010-08-02 09:58.
Posted in: Niche Marketing
he barbecue sauces, salsas, mustards and rubs are on the shelves. Now the owners of Sauceaholics just have to hope for business.
They opened the small shop in Lakewood last week. It's a simple operation by most business standards - one employee and 900 square feet of jars and bottles for sale in a shopping center. But they still face the same obstacles every new business does.
The U.S. Small Business Administration reports that about 650,000 businesses opened and another 575,000 closed each year from 2004 to 2008, the most recent data available.
The biggest problem facing most new businesses is lack of access to capital, said Janice Donaldson, regional director of the Small Business Development Center at the University of North Florida.
"Some people have all the money they need and good for them," she said. "But most of the clients we deal with have to borrow money from conventional banks. But that's dried up."
The investment in Sauceaholics has been modest.
The three partners - Don Smith, Sandra Hazen and Jack Gibney - have invested $7,500 each so far. How much will that rise to down the road?
"I'd say $10,000," Smith said. Then he paused and added, "No, make that $12,000."
They didn't have to borrow any of it. But they signed a 16-month lease at $1,900 a month, so they're committed.
"We're flying by the seat of our pants," Smith said.
The idea started last Christmas when Smith went online to buy salsas for his partner in their CPA firm.
"The further I went, the more this exploded," he said. "There's a whole cult out there of people and their salsas."
He ordered a bunch, put together a couple of gift baskets, but it continued to stay in his mind.
"A $30 order might cost $15 in shipping," he said. "So wouldn't it be nice to have a store that had all that salsa? And then it grew into sauces, marmalades, hot sauces. And you talk about a cult, look at hot sauces."
He talked to his wife about it. She talked to Sandra Hazen, a longtime friend, about it. Smith talked to a neighbor, Jack Gibney, about it. And they decided to go for it.
The process was simple: Search the Internet for makers of the products, e-mail them and ask about wholesale prices.
They created a corporation, got a credit card and started ordering. They order mostly in cases of 12, with most costing them $80-$150.
"Our competition," he said, "is who we just bought it from."
Generally, he prices the items a little higher than the manufacturer's retail price and generally a little more than twice what they paid, but there's no shipping. Prices run $3-$10.
"We didn't want to be that sauce place that opened up but their prices are way too high," he said.
A bigger problem with specialty retail shops, Donaldson said, is the obvious one: They compete with the big stores.
"There's a lot of sauces in Publix," Donaldson said. "The same is true with wine shops or anything else you can get at the big boxes. Specialty shops may think they have an advantage, and maybe their sauces taste better than anything anywhere else. But how do you communicate that with the customers?"
Sauceaholics has about 200 different products, and Smith said if they find out a grocery store carries it, they probably won't.
"We can't compete with them," he said.
The trio didn't talk to any small business experts, didn't seek out any advice. And they don't have retail experience.
But Smith is a CPA who has seen the books for lots of small business. Both he and Gibney, an attorney, run their businesses and Hazen owns a bed and breakfast in Vermont.
So they know about rent and overhead.
"If you haven't worked retail," Donaldson said, "it's a grueling experience. Most people who start up don't have a lot of money. So they work it, and their relatives work it. That's why a lot of people quit, because it just isn't as fun as they thought it'd be."
The sauce partners brought in Hazen's son Stephen to run it. He didn't invest but will get a share of the business in return. He staffs it during the week, the owners work on weekends.
The trio don't have a complex business model. Smith figured out the basics of overhead and markups. He figures that they need to sell about $7,000 worth a month before they start making money.
But they haven't figured out a point where they might pull the plug on it if it doesn't go well.
"It depends on where we think we are in the evolution of the company," Smith said. "If we can't think of any new things to try, if we think we've got the best products we can have there, then it might be time.
"The upside is that this is successful and we could open more stores, and that's far, far greater than the downside. I didn't have to mortgage my house. I'd take a hit, but it won't change my lifestyle."
"The downside," Smith said, "is, yeah, we've lost some money. But we've got everyone's Christmas present for the next year or two."
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[Via - CNNMoney.Com]
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