How to Fail

Being in the tech industry, I wanted something that was actually more fun and that I could pass down to my kids later in life.  My wife was always adamant about owning a children’s retail store.

I did a lot of research on the market, determined what it would take financially to start off, read many books on retail management and eventually procured a small 850 sq ft space to start the business in an area that demographically met the need. Just making $85 per day would be sufficient to sustain the business as the lease was only $800 per month and the extra overhead like lights and phone were about $120.

My wife worked on finding wholesalers and we had a lot of fun going to the shows where new clothing lines were being presented.  We put in our first order of about $8,000 to fill the store with a vast assortment of retail items.

We opened our doors in Spring and it was amazing! We were making money!  We were actually doing well enough in the first few months that my wife decided that she was going to start paying herself out of the register – one big mistake.

Because we were doing so well, we needed to re-order pretty quickly to keep the shelves stocked.  When we would order, we would use a credit card set-aside for those purchases.  I calculated that we would always have a rolling balance with the constant buy/sell and that we could sustain the $400 per month payment on the $20k limit credit card.

I was still working my full-time tech job and would work the store on weekends.  That is when I would look over the finances and reconcile bills.  Around the third month, I noticed that the money that I thought we made was actually not as much as I thought should be in the bank account.  I asked my wife about it and her response was that of, “I need money to live off of, so I just take $40 here and there as I need it” – I guess I didn’t think about that part.

We looked at that part of spending vs what the store was making and established that she could take $150 per week.

Bills were getting paid, sales were good – not as great as the first few months but still doing well.  Next problem is that because we had done so well, we had to re-order fairly quickly which meant that $20k credit card was almost maxed out by month 6.

Now we were getting into the Fall season and in retail, that is when you order for the next Spring.  We were running out of money.  My wife had broken the promise of $150 per week spending and we missed our first lease payment around month 13.  Cash flow was tight and I ended up using personal credit cards to make store purchases and pay bills.

Downward spiral from there, no money, stock market crashed, no merchandise to sell and ultimately bankruptcy. The landlord tried to sue us for $17k which would have been the entire 5-year lease.

There was so much stress and anxiety with the loss that was occurring that my wife thought that having an affair would be a good idea to get her mind off the impending doom. Chaos ensued for many months until we were able to find stable ground again.  Probably the most horrible experience in both of our lives. We managed to work through these tough times but I am sure many would have thrown in the towel.

What I learned trying to start a business

• Never go into a business with your spouse
• Always over-estimate your startup costs as they are likely 3x what you originally thought
• Make sure you understand your cost-of-living while starting up
• Don’t use personal credit cards – no matter what!