In an unexpected twist, the San Francisco city government really helped them start their business. San Francisco's Office of Economic and Workforce Development
got wind that these gentlemen were interested in starting a bike shop
in the midst of the drug addicts, prostitutes and stolen good fencers of
Market Street. The Workforce Development office connected them with a
lender who was willing to underwrite the loan and introduced them to
their eventual landlord.
Whoa, government works sometimes. Who knew?
HOW TO LAUNCH A BIKE SHOP
With the financing and a location in place, they could start turning a dilapidated storefront located next to a strip club
into a haven for urban cyclists. First, they needed bikes to sell. The
bike industry operates a lot like the car industry. The bike
manufacturers like Cannondale sign contracts with bike dealers to give
dealers exclusive rights to selling the bikes in geographic areas. That
way the dealers are insulated from competition and the manufacturers can
keep prices where they want them. Almost no brand name bikes are
allowed to be sold online.
The first bike manufacturer that Huckleberry talked to backed out
just before signing the contract. They were concerned that another one
of their dealers was too close for comfort. Luckily it was fairly easy
to sign up other bike vendors. It turns out, companies like to work with
people that want to sell their products! In quick succession they
signed up vendors like Cannondale, Felt, Masi, Public Bikes and many more.
Once you sign a deal with a bike manufacturer, you need to buy their
bikes. Most bike dealers will give you a line of credit to finance your
inventory with a 0% interest rate as long as it's paid in time (this can
vary from 30 days to 6 months). Even still, about half the bikes in
inventory are purchased immediately and all soft goods like bike
clothing, locks, racks and lights are bought outright.
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
"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
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.