Grade A Horseshit: No offense to PTO (and perhaps to Giuseppe if he is unaware of what he has done), but I have to say my piece on this kind of activity. As someone who runs a small business and has invested in others (even if they are not centered around menswear), I think I know a thing or two about getting things off the ground.
I understand the allure of Kickstarter and Indiegogo. Raising money is the most difficult part of trying to start a new venture. There are usually two types of entrepreneurs raising funds:
Those that do not have the means and must seek outside sources of capital to launch the venture
Those that wish to distribute the risk associated with a venture and therefore want to raise money from external parties to reduce overall capital exposure.
The problem with Kickstarter and Indiegogo is how they accomplish these goals. Traditional angel investing is done by friends and family or perhaps close acquaintances. In exchange for investing money though, you want to get a return on your investment to offset the risk you are taking. Most often that is in the form of ownership in the company (and therefor a share in the profits), or a simple loan with repayment terms.
These campaigns completely skip around this concept. They offload the risk onto individual investors, but those investors do not get a share in future profits or their money back with perhaps some interest. They instead get some specified “reward” for placing their hard earned money in someone else’s hands. This is great for the people raising money, but not particularly fantastic for those investing it.
In theory this can be an acceptable investment strategy when it involves a tangible product that an individual wishes to buy and is not readily available by any other means. However, in this specific case that concept does not really apply as the “reward” is only a discount (not a product) and is, frankly, highway robbery as it is currently structured. The only way to really cash in on your investment is to double down by spending more money at the resulting store. And keep in mind, this is a niche store that has no guarantees that the stock will meet what your needs or desires.
So let’s do some quick math and come out with the break-even point of your investment.
- 1st Perk Level: $ 50.00 Contribution = 10% off 1st Purchase
- 2nd Perk Level: $ 100.00 Contribution = 10% off through EOY
- 3rd Perk Level: $ 250.00 Contribution = 15% off through EOY
- 4th Perk Level: $ 500.00 Contribution = 20% off through EOY
- 5th Perk Level: $ 750.00 Contribution = 25% off through EOY
Now let’s assume “through end of year” means the end of the current calendar year. And this campaign ends in 44 days from today, which means at earliest you can spend your money on June 22nd. That leaves you with 192 days.
So here are your minimum investment to break even on the Perks:
- 1st Perk Level: 10% off 1st Purchase = $500+ single purchase.
- 2nd Perk Level: 10% off through EOY = $1,000+ in 192 days
- 3rd Perk Level: 15% off through EOY = $1,667+ in 192 days
- 4th Perk Level: 20% off through EOY = $2,500+ in 192 days
- 5th Perk Level: 25% off through EOY = $3,000+ in 192 days
Take a look at that, the minimum investment break-even point is $500 spent, and it must be from one purchase (assuming multiple products can be involved). The “best” (defined by maximum Perk spending) purchase requires you to hit $3,000.00 spent in a single year to start seeing additional a profit in your investment. Obviously once you start spending over this you can really bank some return, but how much are you realistically going to buy from a store like this?
I can see how in Giuseppe’s eyes he might want to limit your ability to eat into his profits (typical clothing retail markup is 50% on items as a rule of thumb, although likely less here), but this would have worked a lot better if you simply offered the investor a credit at the store. For example the $750 contribution could result in $835 store credit (netting the investor a 10% ROI). You would still earn your markup less 10% and the investor would get a specifically limited perk with no additional investment required.
Instead, you have to spend money to get in the door, then continue spending more until you you at least break even; a clever business strategy to force individuals to purchase more products than they might otherwise desire and also an accounting trick to avoid having to create open liabilities to track per customer (similar to gift cards). Great for Giuseppe, bad for you considering this is a niche retailer of thrifted items with no guaranteed stock levels in your size. The whole thing seems like a very dubious proposition.
So in summary, if you consider this a sound investment, think fucking again. This is basically charity. And in my opinion PTO is doing a massive disservice to their readership by not pointing that out. I love PTO, but shame on them on this one.
putthison:
A New Indiegogo Campaign
Our friend Giuseppe has been writing one of our favorite blogs, An Affordable Wardrobe, for the last five years. About three years ago, he started organizing the Top Shelf Flea Market in Boston (which is still going strong) and opened a nice little webshop for his thrifting finds.
Yesterday, he launched an Indiegogo campaign for his next step: opening a new menswear haberdashery to be located in the Boston area. Like everything Giuseppe does, the store will be aimed at helping men of modest means buy affordable, classic clothing. He says the idea is to not have another down and dirty thrift store, or another vintage shop full of extremely hip clothing, but rather a genuinely classic men’s shop with the best of both those worlds. Think Alan Flusser’s shop in Manhattan, only crazy cheap and second hand.
I think Giuseppe’s idea is great and have already contributed myself. Go check out the campaign when you have a chance. And if you’re in Boston, get excited about the possibility of this opening.
