Across the industry, the average retail gross margin on bike sales is 36%. So, if you see a bike for sale for $1,000 the store can make a gross margin of $360 on it. For soft goods the industry standard margins are 50%. These margins are fairly stable and can't really be controlled by the store. The average bike store earns 40-42% margins since they sell a mix of bikes and soft goods.
Since the margins are predictable, revenue projections give you a good idea about how much margin you're going to have to pay for peoples' salaries and your rent. Gross margins are critical. The business would need to hit certain sales goals or it would predictably implode.
One year from when Brian quit his job at a law firm, Huckleberry opened for business.
"Before we got started, we made all these aggressive predictions about our revenue. We meet with an accountant and she was like, get out of here, these numbers are crazy. So we went back and made much more conservative assumptions. We ended up beating those projections for our first year, but it was good to be conservative otherwise we might have made bad spending decisions."
The first year went well. Really well for a brand new business. Huckleberry's sales exceeded even their more aggressive set of projections. Three months in, the founders were able to start paying themselves. Eight months later, they could afford to pay themselves a livable wage.
"Yeah, I remember the first bike we sold, it was awesome. I remember our first $1,000 day and that felt incredible. Then we had a bunch of really big sales days and you need something even bigger to get the same rush."
At some point, the team of four people wasn't sufficient to handle the business that was walking in the door. Sales were falling through the cracks. Now they've expanded the team from four to twelve people. Every time they've added a new team member, the investment has paid for itself with extra sales. They've never had to touch the $100K buffer that they budgeted when they started the company.
IF YOU BUILD IT...
"We've grown a lot in the past year, but I can't tell you why we're actually growing. Sure, every time someone walks in the door, we give them the best possible experience and we really do make them happy. But why do more new people walk in each day? I don't really know."
Perhaps the most interesting part about talking to Huckleberry was that it's hard for them to pinpoint why they are acquiring more customers. They've built up perhaps the best bike experience in San Francisco in just a year, but why do new people walk in the door? They buy Google and Facebook ads, but they have no way to track how they convert. They're located on a main bike thoroughfare so commuting bikers can discover the store, but at the same time they're in a bad neighborhood so it's hard to know how the location helps or hurts. They try to deliver on satisfying every customer and create positive word of mouth, but it's impossible to measure what part of their marketing is driving new customers and what part is wasted spending.
In many ways, starting Huckleberry was a leap of faith. If you build it, they will come. And they did. Remarkably, they've been able to invest more in inventory and staff, and those investments have paid off. But the exact reason why they are growing? Helpful service? Word of mouth? Location? It's impossible for Huckleberry to pinpoint.
THE POWER TOOLS: SQUARE, GOOGLE APPS AND SHOPIFY
Huckleberry runs its entire business on cloud-based apps. The most important piece of software in their business is their point of sale and inventory management system called MerchantOS. They absolutely rave about it and it only costs about $50 a month and has a solution specifically for bike shops. The app tracks their inventory and also tracks the inventory that their vendors carry. For example, if a customer asks for a specific bike rack, Huckleberry can instantly check if they have it in stock or if they can order it from one of their vendors and then make the sale. Pretty powerful stuff.
They use Square purely for payment processing but not for its point of sale system. Email is run through Google Apps and bookkeeping is done using QuickBook Online.
They've spent $10,000 getting their website up. They originally paid $6,000 for the site but were unhappy with the result, so they had it redone a few month later. They have a Shopify page that they load some accessories on and there are some occasional online sales but it's not a huge emphasis. They mention the bike brands they carry on their blog so sometimes people show up to the store because they Googled "cannondale san francisco".
Beyond that, they don't show all their actual bike inventory online. Keeping that up to date would require a lot of maintenance and mental overhead. For Huckleberry, having a good website is important, but it's not going to make or break them. To them, they'll succeed or fail based on the customer's experience when they are in the shop and that's what they want to nail. They're not going to succeed by building the world's best bike website.
'IT'S NOT AN OPTION TO FAIL'
"If I had started this business projecting that we'd fail, we wouldn't have started it. It's not an option to fail. My partners have kids and houses and it's not an option."
It's commonly asserted (and presumably true) that most retail businesses like restaurants fail. The competition is intense, the labor costs are sky-high, and customer demand can be fleeting.
The founders at Huckleberry took a risk in starting a bike shop and put everything into it to make the business work. When you walk into their store in downtown San Francisco, it's immediately clear that staff cares about helping you, whether you're a novice biker or insane randonneur. You can even hang out and play Tetris! It feels different than any other bike shop in San Francisco and that was the founders' plan.
Talking to Huckleberry, it also seems clear that the most important software tools for small business haven't been invented yet. There is no "google analytics" for a shop or measurable ways they can promote themselves offline or online. Somewhere in all of this, there is probably a billion dollar startup idea or two.
This article also appeared on the Priceonomics blog, a content partner