The Bargain vs. The American Dream: Small Business Ownership

Stories and names used in this post are fiction, though they are based on real life experiences. Every so often, I see someone really excited about the thought of opening their own cloth diaper store, or other small business. I get it. It’s “The American Dream.” I’ve also heard complaints about product prices, talk of buying well…anywhere but from small businesses, and references to brands as “big” when I know for a fact that they are not. Ex: “They’re a big business, they can afford to cover return shipping.” or “They’re a big brand, they can afford to honor this price mistake for everyone.” Starting a business isn’t that easy, and the successful stores and brands have worked incredibly hard, and taken risks to get where they are today.

In the past 7 1/2 or so years, I’ve seen a lot of businesses come and go, I’ve seen a lot of struggles, and I’ve vowed to shop small even more than I already did. So what exactly is “small?”

People often think shops/businesses are a lot bigger than they are. Many are run by a single person or husband/wife team. They need to put forward a professional business presence so that they appear reliable and trustworthy, yet they also need customers to understand that they are a small business and don’t have the same resources as a large brand or store. (See this definition of small businesses and know that it’s rare for anyone in this industry to meet/exceed those guidelines.) Many customers have become accustomed to the free shipping both ways that big retailers can offer, and don’t understand that a small retailer would lose money on an item if they did so. Wonder what being a business owner is really like?

Positives of owning a business:

• Work for yourself
• Make your own hours
• Fulfill your dream

Downsides:

• Can’t clock out and go home. Many business owners find it really never stops, particularly with email, smart phones and social media
• If the hours you set yourself don’t match what your customers want, you’ll have to change them to make your business work
• No set paycheck; it could be years of growing your business before you pay yourself anything substantial
• You have to pay all your own taxes, including self-employment tax, since an employer isn’t paying their share of your social security/Medicare contributions
• No paid vacations/sick days. If you manage to take a vacation, you’ll probably still be working
• No contributions to your 401k by your employer
• Success or failure is all you. It can be very stressful

Business owners have to make sacrifices and choices in their lifestyle. Do they try to run their business while working full time, or do they quit their jobs to run the business full time? They may be putting retirement and college savings on hold to provide basic necessities for their families, or even moving their family across the country to decrease their cost of living. You may be thinking that a brand or store owner in the cloth diaper/natural baby industry is getting rich & buying vacation homes, but you’d probably be wrong.

Though that single cloth diaper seems expensive, manufacturing in the USA is expensive, and there are usually huge minimum quantities required to even produce products overseas. Brands who sell both retail and wholesale have to cover the cost of production and business, but still make a profit for themselves, while allowing a profit for their retailers. Quite often products are priced as low as they possibly can be. Making a change to the product? Enjoy another setup fee, designing and printing your new packaging and promotional materials! Lots of brands and online retailers are not only a small team but are also working from their home offices and storing products in their makeshift garage warehouse just to keep costs down.

When you shop small, either online or locally, you can receive personalized education and often get in touch with the owners directly. In person, you can touch and feel products as well as attend classes and receive personalized recommendations. Most brands these small businesses carry are items they have tried and love themselves.

When talking small businesses, Amazon is a difficult subject. Some customers will come into a shop and receive personal assistance in choosing an item, only to turn around and order it from Amazon to save a buck. Many retailers will not carry a brand that’s also sold on Amazon or in a “big box” store like Target.

On the flip side, for a small manufacturer (or retailer, if brands they carry permit Amazon sales), they may feel they can’t survive without Amazon. Amazon allows them to reach customers they never would on their own. So many people check Amazon; some even check prices while in a store. A potential customer may see a product as a “related item,” who otherwise may not have found the brand. On the other hand, the fees can get expensive and returns are very costly. Some customers even send back sets with missing items and the brand still has to bear the cost of the product and return.

Due to commingled inventory, you could potentially end up buying a counterfeit item on Amazon. If all items with the same UPC are boxed together, someone picking your Amazon order could grab the counterfeit with the same UPC rather than the legitimate item sold by the store from which you purchased. Certainly watch out for prices that are too good to be true, or stores with low ratings, but know that you may not receive the item sent to Amazon’s warehouse by the shop you choose.

Amazon isn’t the only competitor of small businesses. Almost anyone can quickly set up a shop and start selling products. If it doesn’t succeed, stores often close and deeply discount, causing a rift in the market, as other shops try to compete with those prices. Other “hobbyist” store owners have done things like selling product they don’t actually have, then disappearing off the face of the earth. This can make customers hesitant to buy from other online shops.

Owning a business is a constant stream of decision making.

What to stock and how much? That product that was selling so well these last few months is now just sitting. The manufacturer is allowing a 20% off sale, but if I do that, I won’t make any money. Well, at least I’ll move it. It’s hard to have so much money tied up in inventory.

Speaking of money I need to pay my quarterly taxes. Oh and my health insurance premium. Better remit my sales tax for the quarter too. Shoot, my business insurance is due and so is my annual business license renewal. Guess I’m not going to put anything into my retirement account. Maybe next year.

Brick & mortar stores also have rent, electricity, fixtures and more, in addition to the website, advertising, shipping etc. costs of online retailers. I’ve heard of shop owners standing in their store all day only to sell $50 worth of product.

They aren’t always sure they’ll make it.

Susie is working on getting things set up for her shop’s cloth 101 class that evening. She doesn’t charge anything, but always hopes attendees will buy something either that day or later on. Last month she saw someone checking prices on their phone while the class was wrapping up and attendees were mingling.

Quite often, they don’t.

At a downtown store front several states away, Denise was putting her shipping supplies in boxes. She’d hoped that her move across the street last year would increase her foot traffic & help her get out from under the loans she took out two years ago to keep the store open. When her landlord told her he was selling the property, that the new owners were taking over the commercial space, and she’d have to be out by the end of her lease the next month, she decided to cut her losses. She’d been running her store closing sale in-store only so she wouldn’t hurt other retailers, but as she looked at all the inventory she still had, she wondered if that was the wrong choice. After all, when another shop had a neverending “store closing” sale, her customers bought there. Why wouldn’t they for 40% off?

Want your local businesses to stay there? Shop with them. If you receive personal service, buy there. Taking their time with no intention to buy is taking money directly from their families. If you’re attending a free class or gathering, consider buying a small item while you’re there.

Don’t take this like I’m trying to make you “feel sorry for” small business owners. You’d be right if you said they chose it. That said, people do not start a business in this industry because they want to get rich. They do it because they are passionate, they believe in something, and they want to help people. Many would be thrilled to just make enough to squeak by, but more than one business owner has taken out loans simply to keep their doors open.

Here is a partial list of cloth diaper/baby shops that have closed in recent years.
Note: This list was gathered by listing names of businesses known to be closed, as well as checking a list of retailers I compiled previously. If they did not have an active website, they were presumed closed. If I’ve made an error, just let me know.

I have to add a bit more This article was really inspired by my post about “big” brands originally published on the Kelly Wels blog years ago. Here, I mentioned hobbyists, and I noted that “big” guys are probably not big, but I don’t think I said it enough. Take a minute and think of the “biggest,” most successful cloth diaper store you can (there are quite a few of them). Ready? Most of them have a small team. 10 people or fewer. They are the people I talked about in the beginning. They didn’t become a success overnight. They took huge leaps of faith and may have even put themselves at risk of financial ruin if things didn’t happen the way they’d planned. It’s not a hobby for them. They are personally putting 60-80+ hours a week into their businesses. You can email, call or message and you’ll probably hear back from the owner. Even these successful businesses are affected when customers go into their sponsored groups and talk about buying from Target instead of them. Brands suffer when people turn to black market products and copycats infringing on their intellectual property. While I wish every shop would succeed, the truth is that many will not. I’m not telling you to shop small because you should feel sorry for them, or because they’re moms. I’m telling you that if you enjoy free classes & events, or you like the personal service, if you like the shop period, and want to see them stay, shop there. That’s it.

Go stop by that family owned coffee shop. Grab a pastry from the bakery across the street. By shopping small, you’re not putting money in a corporation’s pocket, you’re contributing to your community.

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