There's this Asian guy down the road from my house. His name is Tom
and he owns a little donut shop called Stevenson Donuts. This place
has the best donuts and I swear the guy slips something else into the
coffee that's equivalent to speed.
As I sat there with my daughter one morning as she was chowing down
on her chocolate-covered donut, I was thinking about how profitable
the joint could possibly be. Yes, it's busy almost all the time.
But not "Starbucks" busy or anything remotely close to that.
Here again, we come into a situation where you need a calculator,
pen, and a piece of paper to realize just how "not" worthwhile that
type of business is.
You have to start off with the fixed costs. The overhead on even a
super small 800 square-foot shop is going to cost about $4 a square
foot in my neighborhood. That's $3,200 a month not including the ever-
so-famous "CAM" (common area maintenance) fees, which will run about
50 cents a square foot. So add another $400 a month to that.
The guys that own the place (Tom and Alex), work from 3am when they
get there to about 6pm when they close. It's only Tom and Alex. Once
in awhile, Tom's wife will fill in when one of the 2 dudes are cracking
at the seams and need a break before having a nervous breakdown.
So, no "employees" to speak of. That's good...well, not really. (Who
wants to work 16 hours a day?!)
Initial start-up costs were probably around $15,000 on the super low
side with used equipment including refrigerators, ovens, coffee makers,
etc. Between execution of the lease (first month, last month, and
security deposit matching a month's rent) and equipment, we're already
in $25,000 and we didn't even go shopping for the donut flour yet.
Now we go back into your average sale. Since I've sat in that little
donut shop on an average of 3 days per week before taking my daughter
to school for increments of about 7 to 10 minutes, I began to analyze
the sales going through there.
Yes, sales were a constant flow. You'd get the guy buying a cup of
coffee and that's all. You'd get somebody buying 3 dozen donuts for
a school class birthday party. You'd get everything in between...
usually averaging out to a donut and something to drink (milk, coffee,
juice, Red Bull...etc.)
Between the "bigger" orders (far and few between) and the "coffee only"
guys here and there, I figured their average sale is about $3.50.
Yes, a paltry freaking $3.50.
Mornings are their busiest. This means that there's the late morning
"lull." Then things pick up again around noon when somebody needs a
kick in the ass (i.e. coffee) to survive the rest of the day. Then
another lull. Then the school kids come by to get candy and sodas.
Since they have nothing else but donuts, there's nothing to sell to
really profit big from the lunch crowd and certainly nothing for the
I figured they average about 125 sales per day including during the
times (i.e. the summer months) when they have to take a beating on
sales due to school being out. This will give them around $440 in
sales per day or $13,200 per month.
They may make more, maybe up to $15,000 a month. But I really can't
see them grossing more than that.
Take away rent, supplies, insurance, and inventory, you have about
$10,000 left. Between Tom and Alex, they can split it, getting
For being slaves, basically.
I figure they each work about 70 to 75 hours a week and bring in
approximately $17 an hour for working drop-dead hours.
And we haven't even talked about getting their money back from their
initial $25,000 outlay yet.
Have I "boggled" your mind yet?
(That was the point!)
Here's a basic rule for you that you should tell yourself anytime you
are considering any entrepreneurial pursuit...
Rule #1: Retail Sucks!!
Well, there is Walmart, after all. But you don't want to be a Sam
Walton who, coincidentally on his deathbed said, "I blew it!"
Meaning, he failed because he was all about work and never about
spending time with his family.
Unfortunately, he didn't come to realize it until is was way too late.
But, screw Sam Walton. Because that's not going to be you.
You're not going to be another Tom and Alex donut shop operator either.
Because you already understand the power of massive financial leverage
through distribution. It's like multi-level marketing except that
it's not sucky like multi-level marketing.
And if you don't know what multi-level marketing is, it's those super
lame "opportunities" where you sell product like Herbalife and Amway
to all your friends and family (until they move and change their
telephone numbers to avoid you) where you essentially "use" a large'
"network" of people to move product, and they you get a "commission"
from the sale of these products.
What sucks about this opportunity is that you're moving your product
through people who don't give a sh** about the product or being
entrepreneurs. They aren't serious business owners. They just want
to jump on some get-rich-quick bandwagon. Once they (quickly) realize
they're not getting rich fast, they jump off the bandwagon about as
fast as they jumped on in the first place.
Getting non-entrepreneurs and non-business owners to "move" product
is about as smart and efficient as laying your life on the line for a
group full of attendees at a Weight Watchers meeting to each lose
10 pounds in the next month and then actually stick with the program
for the next 10 years. Not gonna happen!
Instead, why sell somebody else's product through a Ponzi Scheme?
Using the 100% unmotivated deadbeat get-rich-quick crowd as your sole
means to success?
Pretty freakin' stupid success "plan," don't you think?
The wealthiest self-made millionaires are those who created a simple
product, duplicated it, injected it into the massive distribution
market which is composed of a sea of dedicated, serious, and successful
business people (and not fly-by-nights), and count the cash that starts
to roll in.
See you at the top!