At a local Starbucks, I bumped into 3 high school students at Starbucks discussing their homework task – if given $20k to start a company, what kind of business should they enter, write a business plan, and show the rate of return? They told me that they would set up a clothing store in San Diego. Now, I thought that the industry sounded familiar. Some years back, while chairing a panel on high school students’ business plans, I noticed that many seem focused on the retail clothing industry – a very competitive market. Maybe it was a coincidence or a prevalent interest of high school kids interest in clothing. Then, I remembered a professor’s definition of economics – the management of limited goods. In other words, how can these 3 high school kids maximize the utility of $20,000, and grow it for a decent rate of return.
And I recall hearing rags to riches startups that invest only several hundred dollars to create a publicly traded company. I view such stories with some skepticism since some companies require substantial capital for startups, more specifically, in the health industry with their costly FDA approvals and expensive staffing. On the other hand, a software company only requires a PC and tech labor force to create a “shrink wrap” product that can be acquired for millions (or in some cases, billions like Snapchat) — although I feel that this particular market segment is harder to identify.
And I found myself suggesting to the high schoolers to think out of the box: think of the competition, worry about real estate, or maybe combine technology in this clothing business space. I suggested why bother with a store: rent a kiosk, decorate it with actual samples on the surrounding racks, while using iPads to demonstrate other color selections. With this approach one is not burdened with recurring rental costs. I remember that a San Francisco Nike store allows customers to modify the look of their running shoes through an iPad app. And I thought that approach could be used for clothing.
And recently, I have been pasting together a business plan dealing with health devices and their sensors. And, since I attempt to keep au currant with technology trends, I had to make sure that big data would be available through the devices. Again, I thought of my financial limitations in the budget: what it took to acquire the technology, improve and market it for the marketplace. And when one adds the General and Administrative costs as well as leases, then one figures out how long that does budget will last. Everyone then concludes that “economics” dominates the strategy of a company.
So the difference between the business development of a $20k project and anything else larger is the just the number of “zeros”. I could only suggest to those high school kids that they look at the competitive environment first. I always believe that clothing retail industry is highly competitive. Brands and locations are paramount. But maximize the value of the $20k in such a way that they have a successful 3 year run in the clothing industry if they place the “store” in San Diego. Whether they heeded my advice, who knows? But the best of luck for them.