What NOT to do when you purchase a craft business.

It’s always a mystery to me why someone would pay a lot of money to purchase a successful craft business and immediately change things. This happens so frequently that I feel it warrants addressing.

My friend Cyndy spent a decade building a profitable business selling items from her native country. She had a strong following with repeat customers and great relationships with her vendors. When she decided to return to her homeland, she sold to a local man and trained him in all aspects of the business.

The week the new owner took over, he began “cleaning up” the shop, which meant changing all the displays and straightening up all the inventory. Several of us who knew the business explained to him that part of Cyndy’s success was that she had figured out how the traffic patterns in her shop drew attention to particular items and she had placed things strategically where they sold best. He continued to make changes and complained that business was slow. Recently, I noticed he had moved the store to a less expensive and less than prime location. It’s no coincidence that sales are suffering.

In my little seaside town alone, I’ve seen this happen whenever shops or galleries change ownership. It makes sense to make changes if you purchase an unsuccessful business with the intent of turning it around and making it profitable, but if you buy a business based on it’s profitable track record, the biggest mistake you can make is to change anything immediately.  What you pay for when you purchase a successful business is the previous owner’s  knowledge, reputation and relationships. If you aren’t going to follow their lead, save your money and start your own business.

Sure you want to give the business your own style and flavor but when purchasing a successful, profitable business, my recommendation is to soak up every bit of information the previous owner shares, ask questions and listen. Ask for introductions to clients and artists. Ask the seller to attend your first trade show with you and help you with your initial purchase orders. Then model their practices exactly for at least the first year. Put aside your own preferences for now and do things exactly as the previous owner did, making notes on improvements you think of but don’t implement any changes yet. Listen to clients. Ask what they like about the business and what improvements they would like to see. Note comments that you hear repeatedly.

Assuming your numbers are as good at the end of the first year as before you purchased, you can begin making small improvements a bit at a time. Don’t alter too much at once so that you can monitor the results of each modification. If you see positive results, keep the change. If your numbers begin to slide, either make adjustments or return to the way the seller did things.  Remember, you paid for that know-how.

Even an artist or Craftsperson can make a living and a difference

When I tell people my favorite clients to work with are aspiring social entrepreneurs, they frequently ask if I help people open non-profits. Maybe it’s time to clarify what a social entrepreneur is.

Yes, some social ventures are not-for-profit but it’s a common misconception that you can’t drive social change AND make a profit. By definition, social entrepreneurship is “a process involving the innovative use and combination of resources to pursue opportunities to catalyze social change and/or address social needs.” Whether a business is a non-profit, for profit or NGO, determining if it qualifies as a social enterprise comes down to a basic question: does the business add value to society or drive social change.

Two well-known examples of social entrepreneurship are micro-financier Grameen Bank in Bangladesh and Aravind Eye Hospital in India, a provider of eye surgery at a fraction of the usual cost. Both are for profit businesses that improve lives.

When we think of social entrepreneurship, most of us think of the international do-good organizations tackling hunger and disease in developing countries. Sure, we’d all love to change the world, but we can make enormous differences starting in our own little community.

Because my expertise is in the area of for profit, I only work with people wanting to set up a for-profit business.  Aspiring entrepreneurs come to me when they want to start a business that has more meaning, makes a difference and a profit.  Every business needs a profit and loss statement but I leave that up to the accountants. I have a different balance sheet we work through that helps aspiring entrepreneurs work out their multiple bottom line-a value in addition to financial profit that’s measured in how the business improves lives. It doesn’t have to change the universe. it can be as small as making a difference in your own neighborhood, what my friend Alice Barry calls your “YOU-niverse.”

Even as an artist or craftsperson, you can be a social entrepreneur. Let’s say, for example, you design a line of jewelry that you’ve been fabricating yourself. Your business has grown to more than you can supply yourself but rather than outsource it to China, you want to help local women earn a living . By training local women to do part of the production for you, you are enabling them to feed and care for their families by teaching them a skill they can do at home. You save on overhead by not having a manufacturing facility and you’ve provided livelihood for women who may otherwise be dependent on social welfare. Your profit from your sales and the change you make in these women’s lives is your double bottom line.

Another category of social entrepreneurship is the buy-one, give-one model made popular by Tom’s Shoes. Other business donate a portion of their profits to a particular cause. My favorite is a business that actually teaches people how to help themselves so that they are no longer dependent on hand-outs. That method of making change is more sustainable than charity because it enables people to always be permanently independent. The giving continues even if the funds for the program are no longer available.

One way to decide what changes you want to make is to think about what really irks you. What do you think of as a terrible injustice or lack? Most likely if it’s an issue that really bothers you, it’s something you are passionate enough about driving change that you will be effective in creating lasting change. That’s the ultimate in social entrepreneurship.

Thinking about expanding your niche? Think twice!

Sometimes it’s tempting in a slower economy to try to be everything to everyone but it could be your demise. If you’ve been successful in a particular niche, you are likely thought of as the  expert in that specific area and that’s what attracts your customers or clients to you.

This was never more evident than yesterday when I visited a glass gallery that has for nearly thirty years been one of the premier glass art galleries in the country. They had a strong following both on and off line with great tremendous loyalty from both the customers and artists they represented.

The merchandising in the  gallery was exactly as it should be in a tourist area. A few items priced in the thousands were sold infrequently but necessary to draw attention. Serious collectors purchased the many medium priced items. Then there were lots of smaller, affordable pieces that were the galleries bread and butter. The gallery carried only handmade, American glass. Nothing else. They were THE go-to place for American glass art.

A couple of years ago, the gallery was purchased by a long time employee. She saw business slow as it had a number of times over the years as the economy dipped. The previous owners successfully rode out several economic slumps, probably selling more of the less pricey pieces and held in there until the next recovery. The new owner, however, has tried to compensate by stocking  wood, metal and other fine craft. (note: I will go into more depth in a future post about the mistakes new business owners often make when they purchase an existing business.)

In a village with numerous galleries featuring multi-media, the once renowned glass gallery now blends in with all the others. The gallery is obviously suffering slow sales and low cash flow. They built a reputation over many years as a specialty business with a very specific niche. Why would they want to blend in and become “generalists”?

In your own business, does fear of not having something for everyone tempt you to broaden your specialty and become more heterogenous? Are you tempted to diversify so that you appeal to a wider audience? If you want to grow your business, or compensate for sluggish sales, what can you do to maintain your own niche so that you are still known as the expert in your specific area? Can you provide other products or services to the same customer group? Wouldn’t you rather be known to have the best selection of products and services in your own specialty niche than have a little something for everyone? When you are tempted to diversify, be careful not to become too general because blending in can mean becoming invisible. If you’ve found a niche that works when times are good, stay true to it and things will be good again.

How will your business grow? By replicating what’s working or creating a community of complimentary businesses?

Recent conversations with clients and friends about how they can add additional revenue started me thinking about how we traditionally grow our companies.

When my partner and I had success with our first home furnishings business in Tucson, we knew the easiest way to expand would be to replicate this model in other cities. It never occurred to us to open other, complimentary stores in the same city.  Duplicating our flagship store made sourcing, merchandising, marketing and managing simpler and the lessons gained from our early mistakes benefited each of our next sixteen locations. Expansion was formulaic and systematic. It worked well financially and, for awhile, personally. It served my need to explore new places and meet new people. My restless nature was satisfied by several moves to new geography in the service of expansion, but eventually I became bored and needed new challenges.

I now view expansion possibilities differently. I could have stayed in the first location and grown the business by capitalizing on reputation and an existing clientele, offering the same customer group other complimentary products and services.

The food service industry is a good example. Restauranteurs most frequently grow by replicating their first business in multiple cities. Occasionally, we see one person or company open numerous but diverse restaurants in the same area. One of my favorites is a group in Carmel, Ca who own an Irish chowder house, a seafood and steak grill, a Greek cafe and a couple of Italian bistros all within a few blocks. They cross market to customers, offering coupons at each restaurant for discounts at their other locations. While the menus are different, they can share staff and have the advantages of using local vendors. This model of creating a community of businesses in one area based on an existing reputation and customer base works for brick and mortar as well as virtual enterprise.

Because many of you have online businesses rather than brick and mortar, let’s look at how you can use this method of expansion. If we’ve worked together, I may have suggested at some point that you leverage your knowledge and boost your income by replicating and repurposing what you do. In other words, let’s say you teach a metalworking class. I’ve probably encouraged you to record your lessons and sell them as a home-study tutorial. Using the model of capitalizing on your existing business, you might also think of selling some jewelry making supplies, kits and possibly even doing some affiliate marketing of complimentary materials or classes.

How can YOU create a community of businesses that cater to the clientele you already have? What other products or services can you offer to meet the needs of your existing customers? Can you align yourself with other business owners who already serve your ideal customer and provide complementary services?

AS always, your comments below are welcome and appreciated.