Somewhat stunned by the price of Sarah Davis’s purse ($600), I proudly showed her my new shiny, bright red purse that I got on special at J C Penney for only $40. It will be a long time before I forget her statement, “Yours cost you $40; mine will make me $600.” Her purse retails for $3800; she bought it for $600 and will be able to sell it for $1200.
Sarah started Fashionphile.com in 1999 as a way to pay off her law school loans. Fashionphile is now the largest pre-owned luxury handbag business in the country.
So what does the price of purses have to do with a small business startup?
When starting your new business, you may make the mistake of not carefully considering where to spend your time and money. Rather than investing in opportunities that will earn you money, you throw away money on expenses that are not generating profit.
For example, should you buy or lease a building and equipment? Can you start small and gradually grow big?
Costume Craze operated out of their home for several years until the volume of their sales dictated moving to a 60,000 sq. ft. warehouse. During that 7-year period, their sales grew from $17,000 to $10M.
Other small businesses borrow time on expensive equipment until the volume of their orders will allow them to purchase the equipment for themselves.
Rather than hiring administrative support – paying a salary, benefits, and purchasing a desk, chair, and computer equipment – you may want to consider contracting with a Virtual Assistant for the number of hours you currently need.
The first few years could be lean ones, but hold off paying yourself and re-invest that money back into your business.
What are some of the areas where you have invested rather than spent while growing your business?