A reader asks:

Can you offer any advice on how to open a model shop?

Don’t do it. I don’t think that opening a model shop is a good business idea, at least not in the traditional sense, i.e. a high street/town centre shop. Let me tell you why and what I would suggest you do instead.

I wouldn’t open a model shop because a shop caters to a local market, whereas the customers for a model shop are a niche market. Therefore it’s very likely that relatively few of your market live near to where your shop would be. Granted some customers (particularly those in niche markets) will travel to a good shop, but even then as town centres become less car friendly and the price of town centre parking increases you’re reliant a customer making a lot of effort to buy from you.

Furthermore setting up a shop requires a consider initial outlay, conservatively I’d estimate that it’ll cost you £10-15,000 to fit out a shop, £2-£3,000 in fees to arrange a lease and you’ll need to invest around £10,000 in stock and set aside at least £10,000 for working capital. In short you would need a minimum of £32,000 start-up capital. Additionally you’d need to factor into your business plan ongoing costs of around £20,000 per year (for the lease, rates and so on) and (if you borrow the start-up capital) up to £3,000 per year in financing costs. Which means the overheads on a shop are going to be at least £20-23,000 before you’ve even taken into account any other business expenses, such as marketing, wages, bank fees, professional fees and so on.

So what would I suggest you do instead?

I would suggest that you focus your time and capital on building a relationship with your target market. Model making is a hobby and many enthusiasts enjoy sharing their stories with other enthusiasts and in turn hearing their stories. So I’d focus on sharing your [interesting] stories with other enthusiasts and allowing those enthusiasts to share theirs with each other (If you’d like to explore the reasoning behind this I’d suggest reading Seth Godin’s books Tribes and Permission Marketing).

So how can you do this? Well I’d suggest several approaches, all with the same eventual goal: creating a list of potential customers who have given you permission to contact them on a regular basis. The approaches are:

1. Open an Ebay shop and sell models through it – this gets you a taste of online retailing and allows you to begin to build up a customer list (all of whom should be invited to join your community).
2. Start a blog. Blogs (like this one) are great for engaging your target market in a dialogue and if your content is valuable people will subscribe to the blog either through your RSS feed or via an email subscription.
3. Add a forum to the blog and encourage readers to join.
4. Attend the model shows and use the shows to gather the contact details of enthusiasts that would be interested in your community.
5. Create and distribute press releases about the community to the key publications (magazines, blogs and newsletters).
6. Use Pay-Per-Click (PPC) advertising and Search Engine Optimisation (SEO) to drive traffic to your blog and forum.
7. Take part in other related forums, offering helpful advice and be sure to include a link to your site in your profile/signature (but stay within the forum rules).

At the same time build an e-commerce site which you can promote directly through SEO and PPC. Any customers found through SEO and PPC should be encouraged to join your community. As the community grows, so will your business, because it’s a trusted member of the community.

As a result you’ll be able to build a bigger, more profitable business that’s far more valuable that any high street model shop can ever be. Not just that, but you should be able to do so on a smaller budget. I’d estimate roughly £10,000 to build the website and back end systems required, you can hold less or even no stock (instead either ordering on demand or drop shipping direct from the manufacturer/wholesalers), your working capital requirements will be lower and your professional fees too. You’ll also avoid the ongoing costs of a town centre lease, instead you’ll incur hosting charges of around £500 per year – a bargain compared to around £20,000 for a town centre shop!

Asking John:
Do you have a business question you would like me to answer? If so you can Ask John, enquire about using me as your Business Consultant or or you can ask on the forums where you’ll get both my input and that of your fellow entrepreneurs.

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