
Starting a Bike Shop - rohin
http://blog.priceonomics.com/post/41960243010/starting-a-bike-shop
======
at-fates-hands
Having worked for a bike shop for almost ten years, this article was
interesting to me.

Full disclosure - this is who I worked for
(<http://www.eriksbikeshop.com/EriksHistory.aspx>)

Some things about what made ERIKS so successful:

1) bike shops make almost zero money on their bikes. The margins are razor
thin. They make a majority of their profit on accessories. For example, they
buy kickstands for 25 cents and sell them for $12.

2) ERIKS actually used Macs in all their locations and used a custom built POS
system. They only needed one IT guy who ran 8 stores when I was there (they
have around 14 stores now). He said if they were using MS, they would've had
to hire a bunch more support people. It helped keep costs down.

3) At first ERIK looked for lower rent, out of the way places to set up shops.
What he called, "sub-prime" locations. Rent was lower, and because of their
superior marketing, they didn't need a prime location to drive traffic.

4) They trained their sales staff. This was a biggie. As a new salesperson,
you went through a full sales training. You were trained in sales techniques.
How to close, how to get people to buy accessories, how to approach someone,
how to go through the process and asking the right questions to get to a
single bike to sell. By far this is really where they separated themselves
from other stores. Most places would hire bike "enthusiasts" and let them
casually sell a bike if a person was interested. They had a very pro-sales
approach and it showed in their numbers.

5) Keeping wages low. This is probably a contentious subject for most. But as
a salesperson, I made minimum wage, with a small percentage for commission. I
think it was 1 or 2% of the total sales I had. By keeping the wages low and
offering in store discounts and bike manufacturing discounts (which the
manufacturers offer, not ERIKS) they were able to pitch potential employees
that, "There's not a lot of money in the bike industry (lie), but people who
work for us have a good quality of life and good perks of being a part of the
bike community." By keeping wages low, they increased their own bottom line.

~~~
makmanalp
Whoa, that's startling. I always thought bike shops made tons on bikes. You're
telling me this bike costs almost $800 even when the parts are bought in bulk?

[http://www.eriksbikeshop.com/2013-Furley-Cyclocross-
Bike/PR3...](http://www.eriksbikeshop.com/2013-Furley-Cyclocross-
Bike/PR3C10985/Product)

~~~
ltjohnson
I also used to work for Erik's (dinkytown location).

That was the gross margin on bikes, which I'm pretty sure means (sale price -
purchase price)/(purchase price). Correct me if I'm wrong about the formula.

Not included in this is 36% number is the shops cost in selling the bike,
which includes,

* Assembling the bike (unpacking, assembling, getting rid of packing materials, which are substantial).

* Tuning and Selling the bike.

* Post sale service.

At least for Erik's, a big part of the post sale service was to get people
back into the shop and try to sell them accessories. I don't mean un-necessary
parts or work, but things like clothes, bike computers, etc..

For many shops I suspect there is not much profit per bike left after these
other expenses.

Erik's stream-lined much of this process, for example most bikes were
assembled at the central warehouse by a dedicated crew.

~~~
mediaman
Gross margin is the dollar profit divided by sell price. So, (sale price -
purchase price)/(sale price).

You may be thinking of markup, which is the profit dollars as percentage of
cost, and is often used in retail.

A 100% markup results in a 50% gross margin.

~~~
hessenwolf
Dollar profit is a bit misleading. Gross margin is the formula you give, but
not taking into account operating costs.

------
rjett
While this article was noncommittal in offering up the reasons for HB's
success, the pleasant sales experience was reiterated throughout the article.
THIS IS HUGE IN RETAIL.

As of this coming Saturday, I'll be a year into operating a coffee shop I
opened with two friends. Like HB, my shop has exceeded my expectations in the
first year. FWIW, here are my observations on success: If you have the best
sales experience in town coupled with a great, consistent product, people will
talk about you. I monitor every mention of keywords related to our shop on
twitter, Facebook, yelp, instagram, tumblr, etc and after a year in operation,
it's pretty clear that people value the attitude [or lack thereof] of my
employees, our approachability, the quality and consistency of our product,
and the beauty of our shop. In combination, these things help create and
maintain a lot of positive buzz about the shop. Buzz begets buzz too. We've
never once paid for advertising and instead let word of mouth and good product
do the talking. First there were just tweets, Facebook mentions, and word of
mouth. Then bloggers started writing about us. Then we had local press do a
few stories on us. With time, all this turned into positive reputation and
people outside of the city began to mention us. Recently we've received
national press. We also just climbed atop the #1 ranking in yelp for coffee in
Charleston, SC. Over the past year, I've made a concerted effort to keep
people talking and it seems to have worked.

TLDR: If people see integrity in the ownership, quality in the product, and a
pleasant sales environment, they will tell someone and they will be loyal to
the brand. If you've done your job so well that you can inspire your customers
to talk about you, you will grow, even if you aren't in a prime location.

~~~
phasetransition
A timely comment, as I've got a friend about to dive into this very enterprise
(Coffeshop/craft beer combo) here in Atlanta.

Do you mind sharing what you felt were the key traffic drivers in the pre
social media mention days? IOW, what drove people in your door the first 90
days of operation?

~~~
rjett
Actually, we tried to create some buzz on social media even before opening,
but I'm unsure how much this actually drove traffic in those first days. I
think your friend will figure out pretty quickly that at first, opening a
brick and mortar [without any previous brand history] is very much about the
location. The early adopters will be folks from the neighborhood. In some
respects, predicting early traffic for a coffee shop is what I would imagine
it to be like if you were looking at good locations for a gas station. Since
there's nothing too novel about the _concept_ of a coffee shop, before people
try you out, they're going to judge you by what part of town you're in, how
easy it is to park, and other logistical factors. Once you get people in the
door, that's where you need to start differentiating yourself. If you can
impress your first customers, get them talking, and stay consistent, the draw
of the shop will expand outside of the neighborhood. Once you have a
reputation, people will overcome logistical hurdles to try you out. From
there, it's all about continuing to create positive experiences for your
customers and they will keep talking about you.

------
jasonkester
This is a great reminder of how good we have it in the Software world.

Look at their biggest expenses: Real Estate, Inventory, Staffing. For a little
one-man SaaS, those are all zero. And their margins: 35%, as opposed to the
~99% margins for selling software.

The only expense we have in the software world is the cost of building the
product in the first place and the time away from other paying work spent
doing support and maintenance. (And at most a few hundred bucks a month for
hosting). Considering the you can realistically launch a working MVP with 3
weeks work behind it, and iterate out new features while in "maintenance"
mode, it's really amazing how cheap and easy it is to get a profitable
business going in our world.

I mean, sure, you can certainly build a software business with high expenses
and low margins (take funding, staff up big, spend a year building your thing
before shipping, acquire tens of millions of users with no revenue model). But
the "mom & pop" model for software just blows the doors off the mom & pop
model for retail.

~~~
nappy-doo
I like to tell my friends that software is like prostitution. It's the only
product that once you sell, you still own it.

~~~
fwdbureau
To be fair, that also applies to the whole music industry

------
cunninghamd
What is this? I hate to be rude, but it reads something like "Hey, we wanted
to know how to start a bike shop, and had some friends that did. ... Here's
their renovations ... 1 year later, they rock, and they don't know why ... oh,
and there's 1 or 2 BILLION dollar ideas in here, have fun!"

Have they done surveys? Have they asked their customers "how did you hear
about us?" Did they bring on each of those employees with sales experience?
What was their onboarding process? Did they just get lucky? How far away WAS
that other bike shop?

It was a fine article, but I felt it lacked real details.

~~~
jsm
I think the lack of a detail is a big part of the article's point: it remains
hard to know why retail businesses succeed or fail today. That's pretty
significant in and of itself.

------
frankiejr
Preface: I've been an avid cyclist since 1986 and worked as a mechanic at
shops for over ten years.

The article seems to have been written by an outsider that has absolutely no
idea how bike shops work. Bicycles themselves are loss leaders -- they make
very little profit there. Their money is made from upsell, service, and repeat
customers. The margins stated in that article do not reflect my experience.
Not by a long shot.

Of the many shops I worked at, very few things made them truly successful:

1) Love, Time, and Knowledge: Easy peasy. know your shit. The best shop I
worked at was owned and run by a guy that started the store at the age of
eight. Yes, EIGHT. He sold chains and tubes out of his parent's wallpaper
store. I live 3000 miles away and still recommend that shop.

2) Location: The worst shop I worked at was on the richest street in a popular
tourist destination. It didn't matter how bad the service was or that there
was another better shop a mile away. Foot traffic was the only thing that kept
(and keeps) them in business.

3) Niche: This only works if your expertise is in a specific type of cycling.
The biggest source of failure is that (a) you didn't know as much as you
thought or (b) there was another specialty shop that's too close.

4) Outside interest: Someone (usually a company) gives you boatloads of money
no matter how bad you do. One shop I was employed at was a _BRAND_ landmark.
That shop lost money every month for decades, but it didn't matter; they still
sold more _BRAND_ s than any other brand in that city combined. It was a brand
recognition issue that was probably considered a marketing cost.

In the end, there's a common industry joke I heard many times: Q: How do you
make a million dollars? A: Take two million dollars and start a bike shop.

------
JacobAldridge
_"it’s impossible to measure what part of their marketing is driving new
customers and what part is wasted spending."_

The article, which I enjoyed, uses the word "impossible" 2-3 times in this
context. I do not think that word means what you think it means - it's not
impossible to ask at point of sale "How did you hear about us?" and record
that. Or even have short survey forms for people to complete while they wait
(you'd rather people didn't wait; but to the extent that they are they'd
rather fill in info to enter a competition or similar than be bored.)

I disagreed with pg's distinction about startups v real world businesses at
the time, and this is part of the reason why - assuming the different types of
new businesses are worlds apart because one needed $250k to launch and another
didn't.

~~~
brudgers
The size of initial capital investment isn't what separates startups from
bicycle shops.

It's the size of the possible exits which does. Huckleberry Bikes cannot scale
to a billion dollar exit in seven years. The sorts of businesses which PG
considers startups can. That's why they are attractive to investors.

~~~
JacobAldridge
Oh there's definitely a distinction to be made. I feel playing semantics with
"startups = technology" v "a start-up business = everything else" means
founders on both sides of that distinction may feel they have little or
nothing to learn from 'the other side'.

~~~
kevinpet
If you think a start up is about technology, you are missing the point. A
"start up" is a seed for a big company. Lyfe Kitchen in Palo Alto is a startup
because it's a single restaurant to get product market fit before opening a
chain through raising massive capital and/or franchising. A web development
shop is a normal small business because it's not developing a product that's
going to scale

~~~
JacobAldridge
So normal small businesses don't grow? Where do you draw the arbitrary limit
between seed and normal? Can Lyfe Kitchen learn anything from a single-site
restaurant? And vice-versa?

My contention is that a startup is _any_ early stage business that intends to
grow. And that they all have things in common, regardless of whether their
vision is billions or thousands. They may move through that stage at different
speeds - eg, in particular relation to your raising capital point. But drawing
a day one distinction based on vision - not reality - increases risk of
failure.

~~~
brudgers
I agree that business is business and there are common elements between all
business. An example from my small business experience is the 46-46-8 equity
split - I was the 8 - at MB Architects in the mid 90's. The suggestion of a
buyout offer was made by another firm in passing. Relationships went to shit
because any two of us could have sold out from under the other.

The difference between it and a startup is that my equity stake could never
have made me Fuck You Money rich. Sure the company was growing - I was
employee #3. Less than two years later when I left there were six and the
value of the company was about double. That's the way small businesses grow.

If we had raised $1,000,000 there would have been few good ways to spend it.
The differences between small businesses and startups are important if one's
goal is to have a startup. It's a distinctly different goal than owning a
business.

------
bigiain
"Talking to Huckleberry, it also seems clear that the most important software
tools for small business haven’t been invented yet. There is no “google
analytics” for a shop or measurable ways they can promote themselves offline
or online. "

Hmmm, I guess there's already people working on systems using cameras, face
detection and recognition, and linking them to records of faces previously in
the store (pr eben passing by), and to cash register sales (and credit card
identities)?

I find the idea bth fascinating and creepy.

And I'm now wondering how many stores I walk into are doing it already?
What're the chances that most big casinos don't already have something like
this automatically alerting customer service when whales arrive (and security
when card counters arrive)?

~~~
fennecfoxen
Big venues like football stadiums can contact your mobile phone company and
get contact information for all the people who brought a cell phone to the
event.

Big casinos have crazy video surveillance but I think there's still a lot of
humans in the loop. They've got the budget for it, after all.

Of course, the easiest way to track people and their purchases is to sign them
up for the store loyalty program and offer them nominal discounts. Works for
grocery stores, at least. Bike stores are trickier. Fewer repeat customers.

------
jrockway
I'm not from San Francisco, but is 7th/Market really "a bad neighborhood"? I
mean, maybe it's not Midtown Manhattan nice, but I also doubt it's East New
York bad.

(I used to work at the University of Chicago, and took the Red Line to the
55th St. bus. I only had my shoes stolen on the Red Line once, and only
watched a high speed chase come to an end with guns-a-blazin' while waiting
for the bus once... but I'd still consider _that_ a sketchy neighborhood.)

~~~
l1ghtm4n
I've lived in NYC and SF. SF doesn't have bad neighborhoods, just annoying
ones. Crackheads are a nuisance but they aren't very dangerous. Oakland might
have some bad neighborhoods. Honestly the burbs scare me the most. I'm
probably more likely to be shot by a high schooler in Fremont than SF.

~~~
cmccabe
SF has more murders than San Jose, despite having fewer people. I'm not trying
to argue where you should or shouldn't live, just stating a fact.

source:
[http://en.wikipedia.org/wiki/United_States_cities_by_crime_r...](http://en.wikipedia.org/wiki/United_States_cities_by_crime_rate)

~~~
l1ghtm4n
Thanks for the data link. I'd consider the difference of 6.1 vs. 4.1 per 100k
comparable. I was right about Oakland, though, at 26.3. Even Stockton is
higher than SF at 19.7. I'll use that one to back up my fear of bored kids in
isolated towns.

~~~
cmccabe
The problem in Oakland is gang activity. So your chances of getting randomly
killed there are a lot less than the numbers might suggest. However, it does
happen that people get caught in the crossfire. Oakland also covers a pretty
wide area and there are some better and worse parts.

I have never been to Stockton, but you are right that the crime rate there
seems surprisingly high. The cops blame it on the drug cartels. The city is
fairly poor (median income 35k) and filed for bankruptcy last year. I'm not
sure what the problems are there, but I'm fairly sure bored kids are not near
the top of the list.

Incidentally, there is something distasteful about criticizing a city you've
never even visited. Especially when you live in a much whiter and richer area.
I grew up in a poor area that I'm sure many here would have looked down on.
You can have pride in where you live without tearing other people down.

------
fennecfoxen
"There is no “google analytics” for a shop or measurable ways they can promote
themselves offline or online. Somewhere in all of this, there is probably a
billion dollar startup idea or two."

Startup idea or two? Don't mind if I do.

\- <http://www.ekahau.com/solutions/retail.html>

\- [http://www.nearbuysystems.com/solutions/in-store-
analytics.h...](http://www.nearbuysystems.com/solutions/in-store-
analytics.html)

And here's some additional coverage of that space in the media, with regards
to car dealerships:

\-
[http://online.wsj.com/article/SB1000142412788732478440457814...](http://online.wsj.com/article/SB10001424127887324784404578143144132736214.html)
(google URL and click for HTTP Referer if you get paywalled, but I don't think
you will)

~~~
dools
There are a couple of startups already looking at tracking customer behaviour
in the real world based on MAC address[1] but hands down the best way of
tracking the success of a marketing campaign is with coupons. If you're
running Google ads for a bricks and mortar business, don't send people to your
home page, send them to a landing page which has a special offer on it, or
some other identifiable thing so that when people come in and ask about the
XYZ you know where they came from.

[1][http://www.fastcompany.com/3004781/google-analytics-real-
lif...](http://www.fastcompany.com/3004781/google-analytics-real-life-
tracking-retail-customers-through-smartphones)

------
malandrew
There is an underserved niche in the biking industry and that is "urban chic"
bike clothing from multiple vendors. Clothing is one area where brick and
morter retail wins out over online retail because nothing beats trying clothes
on. In SF, I've tried clothing on from Chrome, Mission Workshop, SWRVE, Rapha,
etc.

Sizing between the brands is notoriously fickle and it's impossible to know if
one brand will fit just right while another brand you can't even fit your
thighs into the pants. For example, Chrome fits me really well, while Rapha
doesn't fit at all. SWRVE on the other hand is only sold at 4 stores in the
city (Huckleberry Bikes is one of them, the other three are MissionBike,
BoxDog and PushBike). While I haven't been to HB, I have been to PushBike and
MissionBike Co, and both have a very very limited selection and sizes of SWRVE
clothing. The only non-cycling company that has decent stuff is Lululemon. I'm
shocked that in a city like SF that has lots of cyclists, that it is so hard
to find good biking clothing.

Given the growth of urban cycling, I'm honestly surprised no one has noticed
that you could create just a store that has an excellent selection of
fashionable everyday cycling clothing.

I hope the guys at HB are reading this, because I plan on going by there to
see if their clothing selection is any better than PushBike and MissionBike
Co.

------
grecy
Did anyone else follow the google maps link only to find they were not looking
at Huckleberry Bikes?

[https://www.google.com/maps?q=&layer=c&z=17&iwlo...](https://www.google.com/maps?q=&layer=c&z=17&iwloc=A&sll=37.780906,-122.411722&cid=3195596951110064643&cbp=13,110.8,1.2,0,0&panoid=T7OuMoYSugSY4DwLJ0Qcow&q=huckleberry+bicycles&sa=X&ei=67sKUeOUKMm7iwL-
wYCgCA&ved=0CIEBEKcf)

Looks like Midtown rags to me.

~~~
rohin
Huckleberry is where Midtown Rags used to be. Google just hasn't updated it's
streetview image I guess.

------
guelo
That neighborhood is not even close to one of the "worst areas" in America.
Makes me wonder what the quote is from.

~~~
cmbaus
Yeah it is only a couple blocks away from some the most expensive real estate
in the country.

~~~
robotresearcher
That doesn't mean it's a nice area. In many cities, including North American
cities, the rich and poor are a block or two apart.

In Vancouver it's a short stroll from Tiffany's to East Hastings. Rocks are
bought openly in both places.

<http://en.wikipedia.org/wiki/Downtown_Eastside>

------
calbear81
Interesting read as usual from the folks at priceonomics but it seems like a
lot of the problems about pinpointing how people found them have solutions
that work to some degree including:

\- Provide a nominal discount with a coupon code "goog" so you know users came
from Google. Or you can do a printed coupon with a tracking code embedded. I
see coupons all the time for bike shops like Valenica and American Cyclery.

\- Just ask how people heard about you. Most people will tell you because
making up a story is harder and it'll be natural since your sales associates
are so personable.

In terms of why the location works, my best guess would be because the mid-
Market area is becoming gentrified as more and more startups move in and rents
rise and young professionals with disposal income will pass by the store on
their way to work.

------
cmbaus
It was a smart move to open at that location on Market, especially with the
perks that the city was offering. It is right on a major bike commuter route,
and I suspect hundreds of bike commuters ride by each day.

There are some other great shops in town, Box Dog for instance, but their
access to commuters is probably better than any other shop in town.

------
cheald
I am desperately disappointed that there is no discussion on the best
practices for deciding which color to paint the shed.

------
hexonexxon
all the bike shops in my city are also repair places which is where they make
all their money charging crazy hourly rates to change a tire or for tuning,
and from triple marked up accessories. they all know each other too and will
collectively bulk buy everything to get a cheaper wholesale price

------
lamby
There's an related thread on Slowtwitch about this:

[http://forum.slowtwitch.com/gforum.cgi?do=post_view_flat;pos...](http://forum.slowtwitch.com/gforum.cgi?do=post_view_flat;post=4348771;page=1;sb=post_latest_reply;so=ASC;mh=25);

