Diary of a Small Business Owner (3/28/20) - Sacrificing Margin on the Altar of Survival
When we started Batch, we sold one product: a monthly subscription box. When we started, we thought we were going to be profitable selling subscriptions for the inaugural price of $20/box (including shipping). At that price, you'd get at least 4 Nashville-made items sent to you each month (pre-pay and save!). We hoped to get at least 50 subscribers for our first shipment.
We got 200.
(That's an early screencap of BatchNashville.com).
We still thought we'd make money because in our first budget projections we costed shipping at $6/box (cue laughter). Now, seven years in and over 100,000 boxes mailed we've never been able to send a box for $6 or less. If I had a time machine....
(Actually, if I had a time machine, I'd started working on a COVID-19 vaccine first. Then, I'd go tell myself that shipping costs more than $6/box.)
But low prices led to lots of subscribers. Which led to buzz and media coverage. Which led to lots of subscribers. Which led to...you get it.
Total profit year 1? A loss of $23,497. Are we doing this right?
Eventually, we figured out that margin mattered. As great as it was to get customers and as fun as it was to source locally-made items in a city we love deeply, it's tough to run a business at a loss. (A small business, that is. Big businesses run at a loss all the time. Gotta figure out how to start me one of those.)
Early on, however, we sacrificed margin at the altar of growth. Lose money, but gain customers. Get critical mass and earn trust. Provide exceptional service that most of that customer base begins to pay more for. Then, earn a profit. Rinse. Repeat.
Now we're back in the spin cycle, sacrificing margin this time not on the altar of growth, but the altar of survival.
Over the last two weeks we've been offering a 30% discount on all pantry and bath items so you can stay clean and well fed at home. We're doing this because it helps move inventory that we no longer have the chance to sell in person at our retail store as planned, helps the network of 100+ small businesses we source from keep working, and keeps our people busy. In other words, discounting is keeping us alive at the moment.
Want data? For the same period year-over-year (since our retail store closed), our company revenue is up 6%. Our margins are much less, but cash in is good, right now, even at a discount, on inventory we've already paid for. Our fixed costs are down (lease, labor). So while gross margins are down, so are operating margins. Deep breath. We're doing this. Slowly.
On margin in business and life
Margin matters in business because that amount is what you're actually making when it comes to profit. Maybe that's what you pay yourself from, so no margin = no paycheck. Or maybe that's the long term wealth you're creating so you can retire one day or provide for your kids' retirements. It's what's left that you have free choice on what to do with it. It's the extra. It's where the fun is.
Much has also been made on how individuals can create more margin (i.e., flexibility, enjoyment, and choice) in their work and personal lives. Michael Hyatt has a popular and comprehensive look at the idea and I'd encourage you to take a look at his thoughts. Big idea? You have to plan and stick to that plan if you really want to find margin to enjoy in life. Otherwise, you'll run out of time or opportunity to truly find it.
When I was in divinity school (a long story for another time, maybe once we all don't have to quarantine any more I'll tell you over some pints at The Picnic Tap), we learned about the idea of marginalia. These are the notes that often littered old (maybe even original) religious texts and scrolls. It means that historians and scholars often have to sift through the scribes' or readers' notes to determine what is text and what is commentary. Spoiler alert: what's written in the margins (marginalia) is often more interesting than the main text.
Margins today in a time of COVID-19
What we're learning at Batch during this time is that margins matter now more than ever. Or rather, minding margins now more than ever matters. Knowing what our margins are and where we get them helps us know exactly when and where to sacrifice in order to make it to the other side of this.
But, as a business owner, and now as one who's been tapped to help our city help other small business owners, there's a bigger picture we need to be looking at. COVID-19 has exposed our margins. Especially the margins of society.
The stories often overlooked amid massive reporting of macro data (total infections, unemployment numbers, global forecasts) are the stories of those on the margins, those whom this disease affects most severely and most deeply. Coronavirus doesn't mind the margins.
Syria is trying its best to brace for the worst. Detained immigrant children are testing positive. Those without insurance face death sentences. And you well know by now that the elderly and those with other serious medical conditions are most likely to die from this disease.
These are all marginalized groups.
These groups have always been simply trying to survive. Just trying to make it. Living on the margins - and not seeking out how to live with more margin as business authors try to help us do - is a different struggle. It requires a different focus. A different outlook. A different everything.
Margin matters. Minding it in business helps you grow, or at least stick around, when things don't go as planned. But if we're - all of us - not minding the margins that exist everyday (and those living in them), then we all don't get to the next level.
Margins matter. And if you think they don't then you'll never run a successful business. Or society.
And without a successful society (one that minds margins - all margins), a truly successful business (one that minds margins) won't be possible.
I began keeping this diary on Friday, March 13. You can read all of these posts by clicking here.