Everything I Know About Business I Learned on Skidrow
Skidrow is home to over 16,000 people, most notably, the homeless. Within the streets filled with dirt, drugs, and drenched in urine and feces, is a well oiled machine. It is a place based on rules and a chaotic sense of order.
On the streets, it doesn’t matter where you came from, or how far you have fallen if you fall in line. Most notably, how you conduct yourself is how you will be treated on these streets. In my time there, I saw how business was conducted, and oddly, they have more sense of money, then some who have an unlimited means.
If It Doesn’t Make Dollars, It Doesn’t Make Sense
The top rule on the streets is nothing is free…technically. Yes, this group receives free food, clothing, hygiene products, and much more, but the ones who rule the streets are the ones turning those items from free to fee.
In the tech world, we see lots of Unicorn startups who have millions of users, but the only money they have is what they have been able to raise. This principle would seem silly on Skidrow. The view is, if someone needs something they will pay for it.
No Profit, No Sale
There are many items which go for sale on the streets of Skidrow. People will sell anything from the free lunch to the free Obama Phones (Lifeline) they received. The main item we are going to look at is cigarettes for our main example of how business is conducted.
Cigarettes are expensive due to the taxes. Back in the day people sold lots of illegal cigarettes which were smuggled in from Mexico, but now they sell generics and select major brands. The key is to turn the over a profit, and typically they are looking from 100%.
Cigarettes are bought by singles or packs, and the price ranges from 25 cents to 50 cents for singles, or $3–4 for a pack. Now, to get the best return, the vendors aim to sell single cigarettes. Let’s do the math to see why. There are 20 cigarettes in a pack. At 25 cents each, that pack of generics makes $5. They most likely have purchased the cigarettes in cartons for about $20.For premium brands like Newports, they fetch 40–50 cents per cigarette, resulting in $8-$10 per pack. Obviously, if you sell by the pack, you won’t fetch the margins or prices you want since stores start to factor in the equation as competitors.
Competition Makes a Difference
Skidrow sellers are all pretty close in proximity to each other, so if a person doesn’t like the price at one, they can easily go to another. Sometimes this can result in getting something for cheaper than established price.
Further, the big thing is they don’t sell what they can’t profit from. Keeping with our cigarette example, this means they don’t sell the brand cigarettes by the pack since customers can go to the store and probably get them cheaper. They do sell the generics, so they must be making a profit, though a small one.
Why The Lesson?
It’s simple really. Businesses live or die based on sales, not just having people talk about their products. Some of that has been lost on the startup world, since the majority shut down for having products no one wants to pay for.
In this age, where people prefer the phone screen to talking to people, this has translated to not selling. Though the selling on Skidrow is not what it’s known for, there is a respect that is deserved, since they understand the value of a dollar. It can buy them more products to sell, put them in a hotel for the night, or off to pay for a meal. The thing you learn the most is find something someone wants and sell it to them at a profit, even if it’s that free meal they didn’t want to wait in line for.
Startups need to get a handle on how they intend to generate sales and turn a profit. It’s great being the unicorn startup, but it is also a little pretensious if there is no means of income. The deadpile of startups like FAB (remember them), Secret, Giagom, and more, are visible reminders that good articles in top tiered tech blogs will not save a bad business.