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3 Lessons from Interviewing Small Business Owners (in the Bay Area)
And why the Bay Area is a tough place to start a small business
I’m taking a break for my birthday this upcoming weekend, so there won’t be a newsletter next week.
New issue to come 2 weeks from now.
I’ve always been curious about what it’s like to run a brick and mortar store. We visit these physical stores all the time, yet they are talked about much less than the venture-scale startups that dominate the headlines.
Recently, I had the chance to interview several Bay Area brick-and-mortar store owners, gaining valuable insights into entrepreneurship and the challenges of running a small business.
Today I wanted to share my top 3 takeaways from these conversations. They include:
How important location is for starting a small business
How acquisitions work for small businesses
The hidden costs of entrepreneurship they wish they knew earlier
It’s All About Location
One of the key points that several owners emphasized was how significantly your business's location impacts its success.
They mentioned how the Bay Area is a particularly challenging place to start a business because business owners face difficulties in almost every way.
In terms of regulation, the process for getting the permits and approval from the city can take a long time because small businesses don’t generate much tax revenue for the city.
So they are comparatively lower priority than a large corporation like Apple in Cupertino, or Tesla in Fremont.
Employee retention is also more difficult in the Bay Area. They mentioned that in small towns, employees will often stay with a business for longer.
But here, employees change jobs very quickly. This adds additional hiring burdens on store owners.
And lastly, expenses are much higher in the Bay Area. High renovation costs, rent, and wages can all eat away at your margins compared to other areas.
They all recommended that I consider other areas besides the Bay Area if I wanted to start a store, where regulation is more friendly, costs are lower, and hiring is easier.
They mentioned several more affluent suburban areas that don’t have these same issues that Bay Area has.
How Acquisitions Work
Another interesting point they made was how business acquisitions work for small businesses.
Originally I thought you could just cold-call businesses to ask if the owner was interested in selling.
Boy was I wrong. 🤦
Several of these owners mentioned that acquisitions for small businesses tend to happen in two scenarios:
When there’s a split (ie a divorce or business partners have to part ways)
When the owner retires
Unless you catch a business in these specific scenarios, the owner is unlikely to be interested in selling.
Second, they mentioned that many owners aren’t necessarily focused on maximizing acquisition value, but that trust and relationships play a big part in the acquisition as well.
Many of these owners want to make sure they are handing the business off to someone who can run it and care for it properly.
As such, they mentioned how important it was to be deeply involved in the community to build these relationships with business owners.
And that over-time, acquisition opportunities will naturally unfold.
So the lesson here is that if you’re interested in acquiring a small business, consider being more active in the community, particularly in certain ethnic groups if those groups tend to own businesses of a particular type.
Investing in these relationships is more likely to lead to acquisition opportunities than cold-calling businesses will.
The Hidden Costs of Entrepreneurship
Lastly, it’s worth noting that none of these owners described their entrepreneurship experience as easy.
They mentioned that there were many hidden costs to running a small business that they wish they knew of ahead of time.
For one, they rarely are able to get long stretches of time off. They mentioned that they thought they could build a turn-key business and just hire a manager to run everything.
But it often didn’t turn out that way because issues would always arise that needed their attention.
For a couple family businesses, they also mentioned that the stresses of the business took a toll on their relationships with family and loved ones as well.
They had to burn the midnight oil often, working long hours after work and on weekends to get it off the ground.
For what it’s worth though, all the owners I interviewed said they weren’t worried about the finances of their business anymore, so at least they made it eventually!
It’s clear to me from talking to these small business owners that no path in entrepreneurship is easy.
And in many ways, I’m glad I do consulting instead, as consulting avoids a lot of the problems these owners had to deal with related to owning a physical storefront.
However, if you are interested in starting a small business, by:
Considering the regulatory environment where you’re starting your business
Investing in relationships and community involvement as part of your entrepreneurial efforts
Playing the long game
you’ll be well on your way to starting your own successful brick and mortar business!
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