Talk me out of starting an online hobby shop

Model Railroader General Discussion (Model Railroader)
1

I’m currently a college student and I’ll be graduating in a year. I have a strong interest in model railroading, as well as a strong background in web and database development.

I’ve been kicking around the idea of starting my own online hobby shop, specializing in N scale. Having done business with several of the existing shops, I have several ideas that I believe would make my store unique and ultimately successful.

So, I have a few reasons as to why I should give it a shot. Can you provide a few reasons as to why I shouldn’t? Is it more or less required to travel to the shows? What kind of profit is actually made? What percentage of orders get returned? Should I give up on the idea and make money elsewhere?

Thanks!

2

Unless you can be “available” to take orders and to field questions by phone much of the time, it may be impossible for you to compete with other entities that are well-established. May be…because even they have a web store-front to which folks can place orders for filling during the next cycle of business hours.

I can think of no good reason not to give it a shot except for supply lines that you can depend on, your willingness to go head to head with well-financed competition, your ability to outwit your competition and to out-perform them as defined by your prospective clients.

Bottom line, you are going to be the most important determinant, and I don’t know you…so I can’t answer better than I have.

3

sounds like a young version of me.

one you can handle the burden and the stree

two your starting a new job and responsilbity soon

three these companies have to make online shopping go or their done

Your future is much better than this business, trust me. You need a very good marketing background to have a fighting chance as well.

4

Suggest you try selling just on eBay to test if it’s feasible to build such a business. Also suggest, that the selling of trains over the internet be a moonlighting venture with a real job with benefits in your day time. It’s really a competive business you are considering. My [2c] .

Best wishes to you.

5

Trying your own “shop” on ebay is a good way to get set up quickly and see how you might do.

The main question to answer is “why should I go to your online shop over anyone elses?” There are lots of online shops already that sell N scale stuff.

If you are to start selling product, you need to get established as a dealer, in order to get a dealer’s discount. There are hoops you have to jump through just to do that … often to prove you are serious and not just someone trying to get a good discount for your own stuff, you need to place a substantial initial order, on the order of several thousand dollars worth.

If you’ve got a good bankroll, you’ve got the time, and the technical know how, then sure, go for it. But remember, there’s that all-important question: why would anyone want to buy from you over anyone else? If price, then you won’t have much margin, so you’d better hope volume will make up for it. If service, then you will need lots of people on your end to handle the orders quickly … and those people won’t work for free.

Most small businesses are cash constrained, since you have to spend money in order to make money. And to make lots of money, you need to spend lots of money first. That’s the big catch. If you go talk to a bank, unless you have a track record already of starting and operating profitable businesses, a bank won’t want to lend you a lot of money since they will tell you they’re not in the speculative investment business.

If you need lots of cash and you know what you are doing, there are investors looking to do speculative investment in business startups, but they will look for a track record and for an innovative idea that they think has killer income potential.

Starting yet another online model railroad shop isn’t exactly innovative, nor does it have killer income potential. Trying out a few things on ebay first would be a good way to test the waters and see how you do at marketi

6

You’d have to do the reasearch to determine if these fears are valid, but:

  1. Tiny market, in realative terms.

  2. Many, many, small suppliers, all doing business differently.

  3. How to advertise to reach enough people.

  4. How to compete well enough on price, and yet make enough profit.

  5. There are already several established business with the same target group, and the pie isn’t very big.

So, if you decide to go for it, make sure you do the reasearch (a lot of it), and have a real, solid plan. I’m sure it can be done successfully. I’m also sure that if it isn’t done right, with little margin for error, it can fail, quickly.

7

Well there are thousands of reasons not to start your own shop, the main one would be money. As a soon to be college graduate, how much money do you have available to start a business? I’m assuming you’re like the rest of the graduates out there and probably owe more money to loans than you have banked. I’m glad you feel the need to keep the hobby alive, so take what I say with a grain of salt.

If I can offer you another suggestion instead of what you plan. You say you have a strong background in web and database development and a strong interest in the hobby. Well why don’t you combine both of your interests and instead of looking to start your own store, maybe you can help a hobby shop that doesn’t have an online store by starting one for them. You can become a salesman per se, and approach a hobby shop and try to convince them of starting their own online store, if they don’t have one already. They have the inventory and experince of selling, maybe they are a little apprehensive of the techno mumbo jumbo or don’t know how to go about and start an online store. (Maybe that keeps them off line?) If you can show them the benefits of having an online front as well as a brick and mortar one, you could help stretch their existance a bit longer. You can use your experience in web development to create their website and your database knowledge to manage their inventory and all related processes. I’m sure with you having an interest in the hobby will show that you truly care for the hobby and want to see it grow more. In time after you’ve dabbled a bit with this, maybe then you’ll be in a better postion to really consider starting an online hobby shop of your own. Whatever you decide, good luck.

8

If you’re going to run a business, do you know how? Even though you know about N scale, you need to know how to keep books, a business plan would be good, and all the other business chores.

My suggestion would be to get some retail experience working in a hobby store then get some stock and set up at a couple of train shows. That way you’ll find out if you like running a small business and if you like dealing with the public without having to make a large investment. As you build up your stock, you can move into online retailing.

Good luck

Paul

9

Speaking as a customer … customers are jerks, aren’t they?

I want it cheap or free

I want to break it then return it.

Send me my order the day before I phone it in or I’ll call the postal authorities on you.

So what if my check bounced … I have the trains, hee hee.

Dave Nelson

10

All good points here…but I think the posters that brought up the money factor…that’s going to be the killer.

For you to try to compete in the online world of today, I would estimate having start-up expenses of at least 100,000 dollars.

A bank will never loan you that kind of money, you’ll be lucky to get a bank to loan you any amount of money. The SBA will be of little help.

In the online world, you don’t have the luxury of starting small and building up your business. You can’t starve for five years trying to get it going, it’s got to be at 100% from day one. That’s what online customers expect.

That means you better have a lot of product in stock immediately, the ability to fill orders and ship right now, and have all of your website set up for shopping perfectly…because you will not get a second chance to impress someone online…too much competition already.

You will also have to look at the pricing. I see where you mentioned some sort of unique plan for your business…believe me, it’s going to have to be very unique to attract any attention. All most folks want (from what I can read on this forum) is the cheapest price possible. Look at all the other internet companies and see if you can sell as low as them.

And it is very hard to establish your identity in the online world…you have to do a massive amount of advertising to let people know you exist…also very costly.

Most of the real distributors require you to have a brick-and-mortar shop to get any of their products, and that means even more expense in setting up.

You don’t have to go to all the shows, but that is one way to advertise your business, although with the price of gas and fewer shows, not a very cost effective way of advertising.

After all of this, you will not be satisfied with the amount of profit you will be making.

Every year the pages of the model magazines are filled with ads from new companies who think they have built a bett

11

Thanks for the input everyone. After this and input from another forum, it seems the best route would be offering my services to an existing shop. As much “fun” as running a business can be, there are some parts I wouldn’t mind avoiding.

12

If you turn your hobby into a business, you lose your hobby.

13

Do you know how to build web pages so that the web search engines always find them among the first few results ? If not, don’t bother. My wife does this type work, and she has not figured out the key. When a page shows up in the first few results of a Google or Yahoo search, she makes a bundle, but these results are few and far between. Of course she has studied the HTML and everything else until she is blue in the face, but no luck yet.

Good luck.

14

You need . . .

  1. startup capital (discussed in an earlier post)

  2. fundamental small business know-how, particularly of a financial nature

  3. to very quickly develop knowledge of what moves, so you can inventory what moves.

  4. to develop a loyal customer base by providing the highest standards of customer service.

  5. to be willing to cut your margins by discounting. Based on numerous comments I’ve seen on this (and other) model railroading forum, the most unpardonable sin appears to be “selling for list price.”

  6. (A VERY IMPORTANT STRATEGIC ISSUE FOR ANYBODY IN ANY BUSINESS) a “distinctive competency,” i.e., a capability or service that your competitors don’t provide and that will create preference in the marketplace for your business. Strategy books call this “competing on differentiation.” To determine such a “distinctive competency” requires substantial and very labor-intensive research of the competition. I must sadly admit I don’t have any good ideas for you on this.

Good luck!

15

Search engine optimization is based on two key elements:

  1. Lots of outside links to your site (if other people think your site is worth linking to, then the search engines rate it higher too)

  2. Lots of keyword-rich fresh content. A keyword-rich web site full of pages that seldom change won’t get rated very high by the search engines after a while. This is why sites with blogs and forums typically get higher ratings in the search engines – new content is being added daily. The best of all possible sites is one that has a home page made up of all the newest content from elsewhere in the site, since the page content is always fresh and changing … search engine spiders love fresh new keyword rich content.

Just pouring over the page HTML won’t do you much good if the content isn’t constantly being expanded with new and fresh material.

Just some pointers from an internet developer who’s been in the business for 14 years. [swg]

16

Art is right. Once it becomes a business, you will find it isn’t much fun as a hobby. The last think you will want to do in your “spare” time ( and you won’t have any for a while) is work on “train stuff”.

Tilden

17

arthill beat me to it. What he said is true. I have a hobby related business and I do not spend any time anymore on my layout. I do not regret the business, but I would like to spend more time on my hobby.

Starting your own business can be done. I would suggest getting into the “business” you are interested in by working for someone else for a while to see how the background works. A hobby shop is more than putting trains on a shelf or web page. The accounting and managment end of a business will take a lot of your time. This is all stuff that can be learned by getting the experience from someone else. The good thing about this route is that if you decide not to do it at least you have the business experience, and no one can take that away from you.

Don’t give up on your dreams, a friend I went to school with was interested in being a radio DJ when we were still in school. He went to work as a part time fill in DJ for a local radio station and worked his way up to manager. He now owns about 6 stations of his own

18

Having started and closed a retail business (sports related), I will not offer to “talk you out of it”. An online store circumvents one of a retailers biggest problems…location, location, location. However, an online presence does not guarantee sales, we had a website for over a year, 500 hits and no sales. So here are some thoughts, in no particular order.

  1. However much you think you need to start the business, add at least 20 percent. All the carefull planning in the world still overlooks something and you need the extra cash to act quickly on unforseen opportunities.

  2. Advertising, you need to get the word out. Without an established business (storefront) you will need to do some wide ranging, hard hitting advertising. That kind of impact costs money.

  3. Not all distributers or manufacturers will deal with a pure online store. I believe Horizon Hobbies requires a storefront, if so, you will have no Athearn products.

  4. You have done one thing right, chosed a business based on something you love. Its important because that will get you thru the lean times. Even though our store eventually failed, I never lost the love of sports.

Never be affraid to take the chance, failure can be overcome, success will be sweet.

Good Luck

Rick

19

I don’t believe there is a lot of margin in the hobby retail business. And online has driven out a good percentage of it by competing on price…witness the slow demise of local hobby shops. For items that are essentially the same, people buy on price. Thus, volume matters, especially if the margins are low. And that’s why its hard to break into an established marketplace.

Someone once said that all business ultimately comes down to two things: marketing and innovation. The question is, especially in a cutthroat business like internet retail, how you are going to make this kind of difference that the people above referred to?

One point of differentiation might be customer service. If you could do something innovative in this way to truly establish a customer loyalty, you’d be ahead of most of the other internet retailers, where customer service, communication and connection is often poor. That’s their achilles heel.