Capacity of the small maker - and why it's important to know these things!

This is something that is increasingly cropping up in conversations from those asking how to set up their own shop so thought it might be useful to explain.  I regularly get phone calls or visitors all excited because they have this dream of setting up their own shop and are bouncing away telling me all the fabulous things they will do.  But on digging a little deeper they have often understood how much time they need to do all the fabulous things they describe. 

To give you an example of the capacity issues: a friend of mine - let's call her Lucy - wants to set up a cake shop.  It doesn't have to be cakes, it could be anything that requires your time and expertise to make.  And she is rather good at making cakes, that isn't in question at all as my tummy has enjoyed them!  This is where it gets more tricky for her - capacity. 

For any small business starter you need to know your numbers.  Here's a basic breakdown:

1. How much do you need to bring into your household each month to survive (notice I said survive, you are a startup so work on worst case scenarios as anything else is a bonus in year one)
2. How many hours can you realistically work at your business - you need to sleep, take small people to school, visit your Mum and see your friends from time to time. If it helps keep a little calendar check of your schedule for a week and then work out the hours you do have or could make available.
3. How long does it take you to make each item - if you batch make something then work out a time for 10 or 20 perhaps but as long as you know for example 20 cakes = 2 hours from start to completion.
4. Now you need to work out how much profit you have after selling your work - ignore the time for the minute, just deduct materials cost from selling price.  Remember to include packaging!

You now have your four basic figures to work out if you can survive:

1. Use the time per item and see how many you can make in your available time, eg if 20 cakes takes you 2 hours and you have 6 hours in a day then you can produce 120 cakes
2. Now multiply that number by your profit per item - again, if your cakes have a profit of £1 per cake you have £120 profit per baking day
3. Does that £120 per day multiplied over your working week or month cover what you need to survive?
4. If yes, fantastic; if no what can we change?

I am often accused of being too commercial in my approach to the small craft businesses but the reason is that you do not start out to make a loss! And without knowing your cost base you may well end up in that position.  Many crafters have no intention of turning it into a business, but if you do dream of doing that (and good luck to you) then you do need to keep one eye on the costs.

If you end up with a situation where you realise you cannot produce enough to cover your required income then look to diversify.  In the case of the cake shop, can you sell supplies for cake makers?  Could you get a friend to do some classes in exchange for something?  Rather than you launch your own cake shop can you supply local cafes or shops to start with and build up your customer base?

Capacity is the hidden curse of the small trader - we are required to be all things at the beginning, maker, seller, advertiser, accountant, shopkeeper and the list is endless! This is where it is useful to look to what is sensible, where is your time best spent? What use of your time is going to best move your idea forward? 

Having said all that, there is also an element of risk attached to any start up and you have to decide where your personal risk limit is.  Some are happy to take on a shop lease and work out as they go along, some are more cautious and need to have a full spreadsheet in advance of looking to open.  Neither way is right or wrong, it is an incredibly personal decision.  Whichever route you choose, just make sure you stay on the right side of the balance sheet and have fun discovering your potential!  Also, don't forget there is loads of help out there to bounce ideas and get going.  We love being part of Enterprise Rockers as there are so many supportive and knowledgeble folk in that group, so make sure you take full advantage of the help out there to make your business work for you.


First published by Enterprise Rockers at: http://sme-blog.com/guest-blog/capacity-the-hidden-curse-of-the-small-business-and-how-to-resolve-it

Can jaffa cakes solve competition issues?

We have noticed in the short time that we have been open that competitors take many forms and some are not so subtle about it! We know we have fabulous makers that create amazing products, we know we have a loyal and returning customer base and we know we're good at what we do.  When we first started this all up I was accused of only being commerical, and I am beginning to realise where this comment came from.  If you are used to dealing with projects that support makers you sort of expect them to not worry about the finances because they are already covered through funding.  However, if you have no experience of real business then I agree, you would consider me commerical in my outlook because folk keep expecting me to pay them for things like rent and insurance!

However, it's still a jungle out there in terms of the business.  I recently went on a course about setting up and sustaining creative businesses and it struck me how much we have done intuitively and equally how much further we could go with the Hippos.  It got the small brain all fired up again on the possibilities and the fact that things don't always move in simple straight lines.  We know that our competitors come and go and some have even openly copied our working model, even to the point of emailing me the direct questions! In many respects that's actually quite flattering that we're worth copying and replicating, but equally it's not difficult to copy us.  You find some fabulous crafters, open a shop and say ta-dah come and buy this wonderful work - not exacly rocket science is it?

I don't have an issue with competition, after all BHS can't go into Marks & Spencer and whinge that they also sell red jumpers so please remove them from the shelf.  If we want to be treated as a business then we must act like one and accept that there will always be new and varied hurdles placed in our way.  Competition keeps you on your toes, makes you maintain customer service, keeps you searching for your next break and keeps you hungry to succeed.

One thing that has become apparent is how externally funded projects doing very similar to us is having an indirect effect on the Hippos though.  We recently discovered that a venue was overcharging us for room hire because they thought we had Portas funding and when I said we were likely to drop them due to proving too costly this all came to light.  They were genuinely shocked that we don't receive any support because of how we work and instantly halved the room hire when I explained which was helpful.  However, what worried me was that they had decided that if we had funding we were able to pay more, and it got me thinking.

Another issue that's cropping up is the capacity of our makers to keep us supplied.  We try to only deal with small, independent makers and support them as they move into self employment of their own and been fairly successful in doing so.  However, popup shops often have little or no overheads and can offer them a better deal because of it. Again it's not rocket science, if your outgoings as a shop are lower you don't need to raise so much to stay open.  Makers move or prioritise those offering a better financial deal - and quite rightly on their part, who wouldn't go where they can get a better deal?  They have overheads to meet and families to look after too, it's called shopping around for the best deal for you and it's not personal.  Small makers are not factories, they have a finite capacity level so 10 items made means they have to decide which outlet to put the 10 items into.  However it potentially causes problems as without stock we cannot generate sales, without sales our doors close .... unless

We have to look at the Hippos and decide how to help our own survival - or whether we can survive as we currently are.  We have to look at whether what we're doing is viable.  There will always be pop up shops and there will always be funding for small start ups.  Again, I have no issue with either as quite frankly who wouldn't take some help if it were offered - we certainly would! But, it does make me re-examine the very sector we're trying to support and whether we can continue in the same way or whether we need to take a sideways look at what we do. 

There are some elements that are unique to the Hippos, we can offer a very personal service to customers and makers.  We know all our makers and are able to take the time to help them develop.   I know that there are issues to be pondered over, and that's going to take a lot of jaffa cakes!  But equally I know that there is an answer, it just hasn't appeared yet.  Answers have traditionally appeared from the most random sources so it's all about looking and recognising those opportunities when they crop up.  Someone once told me there is no such thing as luck because luck is merely the ability to spot and take an opportunity so Hippo's on the lookout, and armed with jaffa cakes of course!  The next cunning plan is just around the corner and Hippo's on a mission to find it .... back soon :) 

Why credit bothers me

Someone told me yesterday that it appears as if I just randomly pluck ideas out of the air and leave people going err where's this one come from???  So, thought it wise to try and give a little context to the banking comments I've been making recently on twitter.

Credit is not bad, unmanaged credit terrifies me, no credit means you get trapped, a poor credit rating these days means that some aspect of your life are halted.  To explain - these days most of our financial dealings are recorded and stored on credit reference agencies, miss a mortgage payment = black mark, pay your credit cards each month = good mark and so on.  Not that tricky to follow their logic - unless you find yourself out of your depth as so many folk do sadly.  Not always through buying expensive holidays but just through normal life choices.

To simplify:
you have £1,000 coming in each month
your credit bill is £150 per month
normally you pay this, but you can't pay much more
then ..... the washing machine breaks so you need a new one

this is where the crunch comes:
you don't have enough spare each month so you put it on credit
your credit bill goes up, and to pay it you need to cut back on something else

next month the car needs new brakes ..... see above scenario and you can see how quickly the debt problem can escalate very easily without a holiday or new fancy telly to show for it.  All you did was replace an essential item (the washing machine) and fix your car (needed to get to work).

I actually speak from very real experience on this matter, several years ago my then husband got into real difficulties and stopped paying the mortage without me knowing.  The first I knew of it was the estate agent querying why the locks had been changed and then over time unravelled a whole heap of inter-linked debt issues.  So the issue of debt and poor credit has had a real impact on my life, it took years to un-link myself and re-build a credit history of my own because without one you are pretty much sunk these days.

Solution: we should each have our own credit limit based on our ability to repay it, whether this be £1,000, £10,000 or £100,000 the figure is not the important bit.  The important bit is that when you combine all the credit you have from store cards, car loans, credit cards etc the total spend available should not exceed your personal limit.  So, if your personal limit is £20,000 you can have 1 card at £20,000 or 20 at £1,000 but the records should be linked so that you cannot exceed it.

Better solution: we join and start credit unions! These are fantastic ideas, you pay in a fixed amount each week or month and it can be as little as £1 and then you borrow against what you have saved.  But, and this is the clever bit - you always pay that £1 and some of it pays your loan and some of it goes into your savings.  So you can borrow and save at the same time, simple yet effective banking :) 

And then this is the really clever bit, there are hundreds and thousands of small businesses that manage their money effectively and don't want the overdraft or loan facility so if we set up a small business credit union we could actually keep the cash flowing so that none of ever get stung by stupidly high charges that appear out of left field because the Chairman needed to pay for gross neglicence on the part of their brokers that took a gamble that failed.  Most of us curse our business bank statements, get fed of being in a queue to someone abroad that doesn't get the question we ask and generally put up with rubbish service because we have to have a business bank account to legally trade.

Personally, think it's about time we took our own destiny back and create our own bank or credit union and will keep plugging away with the questions and the ideas till we can help each other.  Business, and small business is tough enough these days so let's start helping ourselves!

Next stage for the Hippos

It's getting quite interesting at the shop, events and for the Hippos in general.  We seemed to have kicked up a gear, mainly because I actually got myself organised with the back office.  Cannot believe how lovely some of our artists were in not chasing me for information - most of the responses to my humble apology were things like don't worry, figured you were busy.  Without such a fab group around me think I would have gone nuts (no heckling from the back over that comment!).

So, next stage - friend told me about the Own Art scheme which is something I would love to achieve for us.  It's basically a credit scheme backed by Arts Council England where customers can buy larger pieces on credit and the scheme allows us to be a broker.  Win win :) The customer gets to buy larger pieces in stages, we get to sell more originals, artists get to be seen more so everyone's happy!

All the criteria is around having original work from living artists and the permission from the artist to sell them which we do.  Just got to wait till August to apply because we will have been at the shop for 12 months then which is the other criteria.  Can't believe that twelve months ago we were in a little garden shed on a really quiet site and now looking to Arts Council England to apply for their credit scheme - it's just such a positive progress marker.

We now have almost 60 local artists and makers in the shop, all fabulous people with amazing work and all so different.  Truthfully I think that's why it works, because we celebrate that uniqueness, they all come from such different backgrounds and some have had a bumpier ride than others but they meet at the shop on an equal footing.  Personally I don't give two hoots where (or if) you trained formally, some of our best artists have never sat through formal art training!  The thing they all have in common is they like making what they do so it's all good.  And the really lovely thing is we actually know them all to chat to and ask what mischief the dog got up to last week and other normal things so it really is like having a creative family that all trundle along together.

The other thing I didn't anticipate is how much button thumping I would do! This is my non technical speak for all things computer based such as blogging, twitter, websites etc.  Someone kindly pointed out that actually it's only me that calls it button thumping, oops.  Also, didn't anticipate the interest we would generate from other sources.  The amount of customers and artists popping in or contacting me via a referral is awesome, and there's me thinking I just stick a purple Hippo on things.

As always, a huge thank you to everyone that has allowed this to happen - and to allow me to see the possibilities of where we could go next.  Already in discussions about the next cunning plan with someone that sees opportunities the way I do, will share when there's something more definite to share but think it could be rather exciting. 

See you all soon, Hippo xx