Lessons learned on starting up a new store

On Nov 4th 2013 we attended the Grand Opening of Ethnik, a client’s project which became reality after 13 weeks of intensive work.

In lower-ranked locations, leverage customer loyalty

Ethnik will enjoy an AAA location that we found near the European Commission in Brussels and which was quickly secured to avoid the competition from coming in. Such locations are extremely rare and most of the time a newcomer will not be lucky enough to find one. First-time entrepreneurs with little money will usually chose a lower ranked location (in an adjacent street for instance where, however, the traffic can be up to 90% less than in a main shopping street); this doesn’t mean however that the store won’t be a success. We have myriad examples of stores in lower ranked locations which were profitable; the secret of success is however to leverage the loyalty of a few customers to reach break-even and hence to keep a strong focus on top-notch quality. If you need more info on this, remember to read our post on how to find the best place for your store.

Stop dreaming: consumers won’t travel a lot to visit your store

If you go for an adjacent street make sure to apply the recipes that we gave on this blog on how to choose the best location for your business. After so many years in the business we can testify that this is the criteria number one for new entrants. Let me repeat this again: if you are about to launch your first store and if you are not a celebrity, don’t dream about customers walking kilometers or driving hundreds of miles to come to your shop. Believe me: it won’t happen! Pedestrians usually don’t walk more than 200 meters and unless someone wants to escape his family for a while he/she (most probably “he”) won’t drive more than 15 minutes.

Lesson learned #1: you can’t be stopped if this is your dream

Interestingly enough we learned also a great deal of new things in the course of the Ethnik venture.

First of all we learned that nothing can stop an entrepreneur when he has a dream. We went through various phases in the Ethnik project and stumbled upon several show stoppers (curiously all linked to financing the venture). Despite all those roadblocks I was impressed by the capacity of the entrepreneur to find new solutions, new resources. His enthusiasm seemed to resist all the realms of the entrepreneurial process. He was actually so committed to reaching his goal that nothing could stop him.

Lesson learned #2: what are banks doing?

Second, what we do confirm is that first-time entrepreneurs have little (not to say “no”) chances of getting financed by a bank. This is valid whatever the amount and this was the big surprise for us. Although the business plan was rock-solid, the financial plan sound and realistic, we found no financial institution to borrow 30000€ from. We were not speaking about millions. We were speaking about 30k only. All possible arguments were found by the financial institutions to refuse: lack of experience, difficulties of the Horeca sector in general, … What struck me was a seemingly absence of knowledge regarding WHAT makes a successful venture. Bankers used genric arguments and did not try –sufficiently at least- to understand the very dynamic of the area where the store was to be set up.

There are of course many firms in the Horeca sector which fail and go bankrupt. This is the reality. Yet, the reasons why they go bankrupt are very different and there are also companies in the Horeca sector which make good (and official) money.

Advice for your business plan

If you are a first-time entrepreneur my advice is the following. Forget about borrowing a 6-figure amount (unless you are a celebrity OR are well known OR have plenty of properties to give as guarantee) and make your business and financial plans fit what you can afford to put in guarantee. There is however one thing you should never put in guarantee : your home! If you are lucky enough to own your house, don’t put it at risk. Never.

My advice is more or less to follow an effectuation strategy. Look at what you have (not only financial resources; you should also consider your network, intangible resources, privileged access to certain resources, …) and see what you can do with it.

By Pierre-Nicolas Schwab Dr. Pierre-Nicolas Schwab is the founder of IntoTheMinds. He specializes in e-commerce, retail and logistics. He is also a research fellow in the marketing department of the Free University of Brussels and acts as a coach for several startups and public organizations. He holds a PhD in Marketing, a MBA in Finance, and a MSc in Chemistry. He can be contacted by email, Linkedin or by phone (+32 486 42 79 42)