How Eating Chocolate Chip Cookies With My Dad Taught Me to Analyze Business
As my father and I enjoyed a snack, he provided me with a simple lesson I have never forgotten.
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Some experiences have a way of staying with you. For example, I can clearly remember an afternoon I spent with my father on a park bench in Capitola, Calif., many, many years ago. Nothing particularly radical happened -- we simply sat in front of a cookie shop and enjoyed eating freshly baked chocolate chip cookies together, their sweet smell filling the air around us.
Selling soft sculptures I had made by hand at street fairs up and down the state was going well enough that I had started thinking about how I was going to branch out. A week earlier, I had driven through Capitola and noticed a sign advertising a storefront available for lease that seemed perfect. It was located inside the Capitola Mercantile, a seaside mall, and had heavy foot traffic and large glass windows.
The lease was only $130 dollars a month -- a steal! (This was the early '80s, after all.)
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I was sold. If I was able to sell my goods at street fairs, why couldn't I sell them in a retail store?
My father wasn't as excited as I was. I'm sure he was thinking, "What the hell does he know about running a retail store?" He was right to wonder. I knew absolutely nothing. But my experiences on the road told me the demand was there. And I've never been one not to trust my gut.
As we were sitting in front of the cookie shop, my father taught me a simple lesson I have never forgotten. It empowers me to this day. It's this: There are no unknowns.
The first thing I asked him while we were enjoying our cookies was, "How much money do you think this store makes?" I was having trouble understanding how a store that only sold cookies was profitable. Let's figure it out, he replied.
How many cookies did I think the store sold in an hour? I started to guess, but he told me we should stick around and count how many people walked into the store and walked out with a cookie. That would give us a better idea, he explained. It wouldn't be exact, of course. But it would enable us to start thinking in terms of high, medium and low figures.
Then we talked about overhead. What did it cost to make a cookie? The store was about the same size as the one I had just leased, so we were able to make a calculated guess about rent. We peered in at the equipment inside. There were a couple of ovens, some mixers and a display counter. Equipment costs -- done.
We noted how many employees were working and figured that the employer was most likely paying minimum wage. We thought about his material costs, like how much flour he was buying and in what volume. We watched employees pull sheets of cookies in and out of the ovens, so we had an idea of how many could be made at a time.
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It sounds simple, but this exercise was helpful to me at the time. Although I was familiar with the materials I had been working with and knew how long it took me to make a sculpture, I had never actually written any of that information down. Suddenly, I was forced to analyze my own future costs. Ironically, when I had studied economics in college, I had hated it. It wasn't until I thought about the same concepts in terms of my own business that they actually made sense.
I hear the same tired refrain from aspiring entrepreneurs all the time: "I'm not sure." "I don't know." My father taught me that every situation is capable of being broken down. And this was decades ago, before the advent of the Internet! Observation is powerful. So is doing research. There isn't any question you can ask that someone hasn't tried to answer. When it comes down to it, you have to be willing to get the information you need. No excuses.
I liked figuring out how a business worked. I still do. Hard work is important. Persistence is key. But at the end of the day, you can't avoid sitting down and staring hard figures in the face. Is the endeavor you're considering truly going to be worth your time? That's an answerable question.
Like I said, our conversation couldn't have been timelier for me. How much raw material did I need to buy? Was I going to be able to hire employees? How many sculptures did I need to sell to cover my costs and turn a profit? With my dad's help, I did the math.
My storefront was profitable for the next four years. I had an absolute blast running it. I moved in across the street, I looked out across the ocean each morning while I drank my coffee before opening the store, and all the while I kept making my merchandise by hand.
Obviously, in life, there are some unknowns. After decades on this earth, it would be foolish of me to state otherwise. But the point I'm trying to make is that there are a lot less unknowns than you might think, especially when it comes to business. Start asking questions, and never stop. Empower yourself with answers.
I've never had a better cookie.
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