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Starting a Bike Shop (priceonomics.com)
193 points by rohin on Jan 31, 2013 | hide | past | web | favorite | 65 comments



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.


Please could you (or someone knowledgable) expand on point 2? Why would a MS based system require more maintenance? I am a longtime Mac user, and don't see why a windows setup would be more complex - it would seem easier to do as there would be more options, but what am I missing? Thanks.


- Virus cleaning - Some idiot accidentally installs 25 IE toolbars - Windows update breaks everything - Wifi drivers decide to stop working - The thing won't POST one day until you remove and reseat the RAM. Not an MS issue, but common on cheap hardware.

I've almost never seen an iMac require attention after setup. When's the last time a PC tower operated by nontechnical people ran nicely without IT attention for 5+ years?


I think the key here is non-technical users. I know many users who have fairly recent Mac hardware that stayed on Snow Leopard because of Rosetta. I cringe to think how many similar users were affected by issues such as the recent Java browser vulnerabilities but no longer receive support for that version of OS X.

In this case, OP mentioned Erik's did have an "IT" employee. I'm guessing the IT individual's knowledge did not extend to having dedicated POS machines or understanding the concept of user profiles and group policy/rights. With cloud-based/hosted POS systems now, security concerns don't necessarily stop at one's browsing/computing platform.


Thanks. My work experience would confirm the 'non-technical user' thought. We're mainly Mac based with the odd PC. The PCs are usually on the brink of death due to crapware that someone thought to install. The Macs seem to avoid this, in part perhaps because to the users are so unfamiliar with the system that they don't try to install the crap.


I've got an iMac that won't keep a wifi connection up for more than an hour or so. I'm not alone, if the support forums are any indication.

The $6 usb/wifi dongle from Monoprice stays connected for weeks at a time.


Wifi modules, just like DVD lasers, eventually burn out. Usually it manifests itself in dropped connections after a period of time. I've got an old Linksys WRT54G that can't keep the wifi on for more than 20 minutes.


Five years, hell three years out the mac hardware is obsolete and unable to use the newest OS. I hope your software is still supported on the old hardware! How is your custom POS developer going to test for that by the way?

As long as we're pulling out anecdotes, I've put together PC's with that service lifetime, for use in business. I've serviced brand new iMacs that don't support certain printers, or other hardware, and the users of these require very much attention indeed.


> Five years, hell three years out the mac hardware is obsolete and unable to use the newest OS. I hope your software is still supported on the old hardware! How is your custom POS developer going to test for that by the way?

Why would their software suddenly stop working on old hardware?


Edit: it's common for OSX to drop support for old hardware. It's also common for software to improve overtime with upgrades and bugfixes. Developers don't want to support old software indefinitely, unless you can do so with newer tools on newer hardware. Simply researching the limits of legacy systems is a massive waste of time, supporting them is a nightmare.

Try to find a modern version of some software on OSX 10.4, for example. Development has likely frozen years ago, meaning bugs won't get fixed, security is out the window, and everything sucks forever.


An MS-based system doesn't necessarily require more maintenance. PerformanceBike ran on NCR/Fujitsu(I forget which) POS registers for some years before being replaced with a Windows-based POS system (Datavantage). There were also backend Windows PCs that handled functions such as corporate communications or printing in-store signage. Besides hardware replacement from the vendor(similar to how you might have HP/Dell hardware replacement), Performance managed to support the stores with only one dedicated MIS engineer until they had expanded to 60+ stores. Granted, the backend/POS programming was handled by developers. Additional resources were available if necessary such as facility networking changes provided by overlap of other MIS staff as well.


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...


Pretty close. ERIKS is still is one of the biggest Specialized dealers in the country. I was told by several people (the Specialized rep, ERIK himself and several buyers who worked in the corporate office) they clear maybe $50-$100 per Specialized bike they sell.

You also have to take into account you have to pay the mechanics to build the bikes before they go to the stores. They you have a driver and warehouse staff you have to pay to unload and get the bikes to the store, so there's some labor involved which cuts down on the margins they have.


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.


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.


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


In many cases. the LBS(local bike stores) are at the mercy of the bike manufacturer.

I worked at PerformanceBike (corporate - MIS) for many years. There the economy-of-scale did help somewhat when negotiating purchases from the manufacturers and I wouldn't say margins on bikes were "razor thin" but I do agree the bulk of sales were accessories and services. However, I have no insight into their current operations.

I was at Performance during several of their acquisitions such as Supergo, Nashbar and another chain in NOVA and all of those operations did have very low margins as the OP mentioned.


According to the article, gross margins across the retail bike industry are 36% on bikes. However, the cited article says that's about what it takes to break even as that has to cover all your operating costs.


Eyeballing it:

- $300 for the steel frame (retail cromo disc-compatible frames are in the 400-500 range)

- $200 for cheap disc wheels

- $100 for the disc brakes

- $200 for the remaining components (levers, crank, seatpost, saddle, etc)

So yes, $800 seems perfect. I couldn't hope to build a bike that cheap at retail cost.


These are not your Huffy brand bikes you buy at Walmart for $100 a bike.

They cost $500-$1000, but you get a high quality product that will last a long time. The ROI makes a lot of sense in the long term. Unless you are the type of person that has to buy a new bike every 2 years because it's shiny.


"They only needed one IT guy who ran 8 stores"

That is perfectly possible with Windows.


> Macs in all their locations and used a custom built POS system.

Locking machines down to a POS, this would be no easier in OSX than Linux, and the premium hardware (with associated cost and limited options) makes this the opposite of thrifty.


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.


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?


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.


FWIW, my wife and I visited Charleston, SC in December from Austin, found your coffee shop on Yelp, and really enjoyed the experience. We came back twice on a four day trip.

We were just in San Diego, and part of our trip was looking for a coffee place "as good as Black Tap"


That's great! Compliments like this are the real payoff when you open a coffee shop.


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.


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


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


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.


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.


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 BRANDs 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.


"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.


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.


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'.


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


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.


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.


"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)?


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.


I know of an insurance company in India that takes photographs of everybody every time they come to the store, incidentally, and keeps them on file.


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.)


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.


SF does have one bad neighborhood, the Bayview/Hunter's Point area.


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...


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.


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.


Well, after living in Harlem, south side of Chicago and SF, I would say the spot where Tu Lanh used to be (6th betwe Market/Mission at night, is an exciting little spot that reminds me of the others, but that's just one spot. I used to walk around there at night, you just have to be alert. It's far from one of the "worst areas".

Waiting at the Redline stop, I only knew one person who was brave enough.


http://www.youtube.com/watch?v=8AM09X2ZJWk

It's bad, but I would say its notoriety comes more from the fact that it's so bad relative to the neighboring blocks. Walk two blocks and you're at the Westfield mall / Union Square.


It's bad. But more so at night, not so much during the day when youd be buying a bike.

Lets wait to see how twitter and square bring the area up in 2 years.


"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...

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

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


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...


I don't think tracking people in store (already quite established, as you point out) was what the article was referring to. I understood it to mean that it's difficult to see if people are walking into your store because of something they saw online, and if so, what.

Seems like Google could do this quite easily. Provide a WiFi service that customers in-store would auto-sign into, that way they can tell if a customer visiting the store has been exposed to any mention of the shop online. I imagine only Google or Apple, or maybe Facebook, could do this because of the sheer amount of information they tend to have on peoples browsing history and location tracking ability.


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.


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...

Looks like Midtown rags to me.


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


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


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


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


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.


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.


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


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


There's an related thread on Slowtwitch about this:

http://forum.slowtwitch.com/gforum.cgi?do=post_view_flat;pos...;




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