Lenders would ask, "How is it your going to make money with Pfizer closing down across the street?". They didn't get that the store was just a face for their online store. As a matter of fact, Tree Town Toys wasn't wincing from the Michigan economy at all, it was growing on wealth from around the country.
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Last time I wrote about Tree Town Toys, I mentioned how great their website functioned and how complete their toy selection was. After speaking with Hans Masing (co-owner with his wife Tricia), I discovered that there is a lot more behind their store then just toys.
Spurred on the success of Brain Station, their online store, the Masings created a home base for their operations in Ann Arbor. This is an area I feel that most entrepreneurs and business owners would feel missing if they operated solely as an online store. With Tree Town Toys, Tricia and Hans had a home.
As many return readers may note, Michigan Innovators has been spending a good portion of the summer on financing innovation. With the departure of Pfizer from Ann Arbor, it's easy to envision large bags of money running out of Michigan's borders. So when Hans came to investors trying to open his store across the street from the now nearly empty facility, they were skeptical. What they failed to see was the huge potential of the online portion of the store.
So how did Hans get the investors to turn around? While convincing numbers of their online sales always helps, managing growth is an important step as well. If you know an industry well, there is always a void that needs filling. Few other specialty toy stores had an online component to their stores. This left an untapped market in the palms of the Masing's hands.
It also pays to have a unique perspective. As an IT professor, Hans is far more business minded then the typical toy store owner. Information technology is one of the fastest changing fields out there, so keeping up with the business world is simple for the couple.
Finally, in order to compete with the big guys, it helps to buy and sell like the big guys. A new addition to their toy store family, Dragonfly Depot, brings the online store potential to other small mom and pop toy stores. By managing inventories for multiple stores in one facility, all parties can benefit by splitting costs that would be too substational for each store to undertake on their own. Stay tuned for more info on Dragonfly Depot.
While a great business plan and a smart approach towards investors always helps a business get off the ground, Tree Town Toys really taught me that when you have all of the pieces to your business puzzle set, everything will fall into place. By starting with what you know best and expanding beyond your own experiences, you will find that there are more untapped pieces of business ideas that are waiting to be put together.
Tree Town Toys' model stuck out to me for two reasons. One, their initial start online and then move to include a physical location. Two, their decision to partner with, one might have thought, competitors.
Online stores are known for their strength in reduced costs, be they inventory, property maintenance, or increased staff. These low-overhead options seem like fall-back companies that can't get the foot traffic that a store front would seem to require. In their case though, it seems the online store needed the brick and mortar component to really thrive. Now it's no secret in online retail that you have to create a "vibe" on your site; the right atmosphere. What this post seems to suggest is that the best way to do that is to really have a physical store front.
My second observation regarded the partnering with seeming competitors. The Dragon Fly Depot specifically targets other toy stores as potential customers, despite the good possibility that they might be carrying similar or identical merchandise. This is an interesting strategy.
What seems to make it work is 1) the specific niches reached by the partnering stores and 2) the outweighing of benefits over costs. That is, there is more to be gained through the pooling of warehousing services and distribution than there is to be lost by helping a competitor sell the sliver of overlap between your niches. This, as mentioned, is probably emphasized by the fact that all of the partnering stores have to take some kind of action greater than themselves in order to compete with giant retailers. Great example of cost-benefit analysis at work.