John Smith’s Retail-level Distributorship
Entrepreneurial Analysis
John Smith is a blue-collar worker in Seattle who several years ago started JSRD as a side means of employment. He had been a very limited consumer/independent contractor for several decades, but started seriously working in this field when he started JSRD. This report will attempt to describe all aspects of his business.
PRODUCTS
JSRD sells two products on a retail level, henceforth known as Product A & Product B.
· PRODUCT A is an organic vegetative product grown in many different countries. John has been offering it for sale for the past 5 & ½ years.
· PRODUCT B is a highly-processed vegetative product grown & processed primarily in South America. It has been offered by JSRD for 3 years, primarily through the same distribution network as Product A.
· Prices for everything are open to negotiation(based on quality) but with very little disagreement, as most involved parties are knowledgeable of product characteristics. Strangely, short-term demand has little influence on retail price.
· Occasionally John will buy a large amount of A or B for a friend. In these cases he rarely turns a profit, instead considering the goodwill thus engendered to be his payment. Typically he buys an equal amount, so that the “piggyback” effect drives down the prices for both of them.
· Product B, being highly-processed, is available in varying levels of purity. Common impression is that 80% is unusually pure, 70% standard & ratios down to 20% regularly reported. The price can thus be extremely variable. John’s suppliers seem to be reasonably cons
istent at what he figures is 60-70%.
· There is another, more heavily processed version of Product B(here referred to as Product B1), but John has not carried it in stock, nor does he plan to, citing potential problems with customer interaction.
· John occasionally carries Product C(a dance and attitude-aid), but only for a small, select group of customers and only as a reward for long, repeat business. He typically purchases 20 units at approximately $8 each & sells for the same amount. This item is rarely in stock & typically only acquired for immediate distribution, for little profit. John considers the profit for carrying this item to be the goodwill generated among customers & never reserves any for personal use. He has been offered to be a distributor for various other items carried by his suppliers but has always declined. At present he has no plans to expand his inventory selection.
· JSRD has no facilities for testing or processing of either product. John relies upon his well-honed personal inspection skills to determine quality & quantity, a process he went over in great detail with this researcher. He would like to submit samples of especially Product B to a competent testing authority but knows of none that grant the required anonymity.
PRICING:
A QUANTITY/PRICE/PROFIT/TIME TO SELL
BUY
· ½ lb/(227grams)(Larger-than-normal purchase/$2300/$360/2 weeks
for unusual quality/price)
· ¼ lb(113.4grams)(John’s typical buy amount)/$1100-1200/$180/1 week
SELL
· 1/8oz(3.5grams)(Retail Market Price)/$40(Customer Price)/$5.5/32 a week
· ½ oz(14 grams)/$160/$22/4 a week
B QUANTITY/PRICE/PROFIT/TIME TO SELL
BUY
· 1oz(28grams)/$600-750/$500-650/1-2 weeks
SELL
· 1gram/$45/$21/20 a week
· 3.5grams/$150/$65/5 a week
SALES DETAILS
· John does not offer credit or accept checks. Both purchases from his suppliers & sales to customers are done 100% in cash. A typical transaction requires 30 minutes and consists of sales of $150 of Product B & $40 of Product A. Most business is conducted in John’s home, with customers often taking their time, sometimes staying for hours to watch movies, talk and consume their purchases. John does deliver his goods for free, though he is infamously late & unreliable, which encourages his clientele to come to him. He typically makes 3-6 deliveries a week, usually on the weekend. When asked if “Product A Customers” were easier to deal with than “Product B Customers” he was energetic in his assent. Although his profit for B is much greater, the client base is smaller and the patrons less reliable. John notes that his “B Customers” are more difficult & demanding, but that the profit more than makes up for the added hassle. As the graph shows, John sells twice as much of A as B, but his income is still about twice as high for B.
· John estimates that he spends 10-50% of his waking time, on any given day, at his business. He acknowledges that this places his hourly profit at minimum wage levels at best, but enjoys the autonomy of being his own boss.
· John believes 90% of his sales are for his customer’s personal use, with 10% being re-sold.
· Yearly profits are estimated at $15-20,000 a year(lack of records makes exact tallies difficult). John’s stated goal is acquire $100,000, but he has no plans to quit the business reaching that sales level
SUPPLY CHAIN
· John deals with 3-4 long-term suppliers. All carry both products. He states that it is easy to find more suppliers but difficult to find reliable ones. He notices that scarcity and over-abundance in the market seems to affect all suppliers more or less equally. As far as work ethic, 3 suppliers work in this field full-time. John does not believe that any of them are importers. All business with them is conducted face-to-face, with only vague details of amounts mentioned over the phone prior to meeting. John meets with a supplier approximately twice a month. The supplier usually delivers & makes approximately 10% on each order, John thinks.
· When asked about the supply chain & origins of A & B, he notes that most of Product A is believed to originate in BC, Canada, while B is undoubtedly South American and the supply is controlled by illicit Mexican elements. Therefore he notes, the supply of B dries up around Christmas, Easter and during other major Catholic festivals, when these elements often return to their home country. In support of this theory, the price of B varies in direct proportion to the distance from Mexico(indeed, South America) where it is sold. He estimates he is 4-5 middlemen away from the actual importers of both A & B.
· An obvious way to make a greater profit in the retail business is to “jump the supply chain” by eliminating as many middlemen as possible. Unfortunately, John states that this is only possible when purchasing an absurdly large amount of A or B, usually 20 or more times the standard amount. John prefers not to take the risks associated with such large purchases & dislikes having large amounts of inventory on hand. This is the reason he does not lower his per-unit costs by purchasing in larger, bulk amount. In addition, apparently Product A has a certain “Tolerance Factor” built into it, encouraging John to purchase various varieties.
· Almost all of John’s customers have multiple suppliers, forcing him to keep his prices low.
DEMOGRAPHICS
John’s suppliers are all Caucasian Seattleites, his approx 35 main customers are 96% white & aged from late 20s to 50s. John tries to sell to an older, more reliable crowd. He places his average Product A customer at 27 years-old and Product B at 32. 5 years ago he estimates that he had 15-20 customers. He is happy with the number of clients he has now, preferring slow growth through word-of-mouth.
SUPPLY/DEMAND FLUCTUATIONS
· Both items become less accessible at varying times in the year. Product A, being vegetative, typically becomes scarce in Summer, John believes due to the heat damaging crops. This “dry spell” of several days on, several days off often lasts from July to halfway through October. Product B typically becomes scarcer around Christmas time. It is apparently very rarely completely unavailable. Instead, the price stays at normal levels but the quality is typically reduced. John notes this phenomena occurring regularly—the price of these two products has been steady for (10 yrs? 20??) but their quality fluctuates according to their availability.
· When asked how the two goods in his inventory respond to long-term storage, John stated that he did not know, never having to store A for longer than 3 months and B even less. He purposely keeps only medium-sized amounts on hand, for security reasons.
ACCOUNTING SYSTEMS UTILIZED
All accounting details are memorized by John himself, with only phone numbers on paper.
SECURITY
John is legally armed & physically intimidating, but credits his good judge of character as the best business skill he possesses. In 25+ years of associating himself with A & B consumers he has never had any need to “get physical” with any of his friends or customers. Numerous times he has had to “cut off” unruly customers before they became a security risk, and he considers himself highly selective of his customers. He prefers middle-aged, reliable, mild-mannered urban-dwellers to young, unruly suburbanites. His place of business is neat & clean, his inventory secure and difficult to locate.
ALTERNATIVE MEANS OF EMPLOYMENT
A list was made of the benefits to John’s life if he were to give up his side business & instead focus on bettering his life in other ways.
· Plusses would include; Daylight hours, a regular job, less security concerns, more reliable friends, ability to focus on an improved career, additional money from such a career, possible long-term female companionship from such a stable life and being relieved of the necessity to fear for one’s life or freedom on a daily basis.
· Minuses could include; waking up early, a regular job, loss of prestige among his friends, loss of income in the short-term, perhaps a diminishment of the fun of living “amid the scene” and spending $100 a month for personal amounts of A & B.
JSRD FUTURE BUSINESS PLANS
John has no major changes in mind for the future. John’s market strategies are not unorthodox, given the unusual legal situation pertaining to his business. He plans to continue expanding his network very slowly, Realizing the potential danger of large amounts of on-hand inventory, he eschews large purchases and sales and instead sets his sights lower & on the long-term. John has several reliable friends available to help him by paying for legal help or other support should such become necessary. He has several large sums of money available from various resources & locations. On an unrelated note, John states for the record that he is in favor of legalization of Product A but, strangely, not B. Irregardless, he intends to sell both, even if legalizations were to ever occur.
CONCLUSIONS
Mr. Smith’s business is unusual in a number of ways important from a business standpoint. Firstly, he can not advertise through normal channels & can only rely upon word-of-mouth and carefully vetting every potential customer and supplier. Secondly, he has expressed a strong desire not to expand his business materially past current levels. He believes the element of risk involved to be too great for the potential rewards. This element of risk is inescapable throughout his business and affects John’s decisions on a daily basis.
REPORT RECOMMENDATIONS
Considering the industry our subject has engaged in, major modifications to his future business plans would be unwise. Aside from totally divesting himself from any connection to this industry, the next-best recommendation would be to approach the subject as seriously as possible. Careful perusal of relevant legal texts(both formal & informal), as well as acquaintanceship with a lawyer who specializes in this field would be wise. At a certain point, purchases of larger amounts of inventory should be made to take advantage of bulk discounts. Off-site inventory storage could possibly help alleviate security concerns. Another idea would be to purchase a more discrete delivery vehicle & take steps to ensure the privacy of his place of business. At a certain income level, plans should be made for “retirement” outside of the United States, in the event of a legal calamity.
Entrepreneurial Analysis
John Smith is a blue-collar worker in Seattle who several years ago started JSRD as a side means of employment. He had been a very limited consumer/independent contractor for several decades, but started seriously working in this field when he started JSRD. This report will attempt to describe all aspects of his business.
PRODUCTS
JSRD sells two products on a retail level, henceforth known as Product A & Product B.
· PRODUCT A is an organic vegetative product grown in many different countries. John has been offering it for sale for the past 5 & ½ years.
· PRODUCT B is a highly-processed vegetative product grown & processed primarily in South America. It has been offered by JSRD for 3 years, primarily through the same distribution network as Product A.
· Prices for everything are open to negotiation(based on quality) but with very little disagreement, as most involved parties are knowledgeable of product characteristics. Strangely, short-term demand has little influence on retail price.
· Occasionally John will buy a large amount of A or B for a friend. In these cases he rarely turns a profit, instead considering the goodwill thus engendered to be his payment. Typically he buys an equal amount, so that the “piggyback” effect drives down the prices for both of them.
· Product B, being highly-processed, is available in varying levels of purity. Common impression is that 80% is unusually pure, 70% standard & ratios down to 20% regularly reported. The price can thus be extremely variable. John’s suppliers seem to be reasonably cons
istent at what he figures is 60-70%.· There is another, more heavily processed version of Product B(here referred to as Product B1), but John has not carried it in stock, nor does he plan to, citing potential problems with customer interaction.
· John occasionally carries Product C(a dance and attitude-aid), but only for a small, select group of customers and only as a reward for long, repeat business. He typically purchases 20 units at approximately $8 each & sells for the same amount. This item is rarely in stock & typically only acquired for immediate distribution, for little profit. John considers the profit for carrying this item to be the goodwill generated among customers & never reserves any for personal use. He has been offered to be a distributor for various other items carried by his suppliers but has always declined. At present he has no plans to expand his inventory selection.
· JSRD has no facilities for testing or processing of either product. John relies upon his well-honed personal inspection skills to determine quality & quantity, a process he went over in great detail with this researcher. He would like to submit samples of especially Product B to a competent testing authority but knows of none that grant the required anonymity.
PRICING:
A QUANTITY/PRICE/PROFIT/TIME TO SELL
BUY
· ½ lb/(227grams)(Larger-than-normal purchase/$2300/$360/2 weeks
for unusual quality/price)
· ¼ lb(113.4grams)(John’s typical buy amount)/$1100-1200/$180/1 week
SELL
· 1/8oz(3.5grams)(Retail Market Price)/$40(Customer Price)/$5.5/32 a week
· ½ oz(14 grams)/$160/$22/4 a week
B QUANTITY/PRICE/PROFIT/TIME TO SELL
BUY
· 1oz(28grams)/$600-750/$500-650/1-2 weeks
SELL
· 1gram/$45/$21/20 a week
· 3.5grams/$150/$65/5 a week
SALES DETAILS
· John does not offer credit or accept checks. Both purchases from his suppliers & sales to customers are done 100% in cash. A typical transaction requires 30 minutes and consists of sales of $150 of Product B & $40 of Product A. Most business is conducted in John’s home, with customers often taking their time, sometimes staying for hours to watch movies, talk and consume their purchases. John does deliver his goods for free, though he is infamously late & unreliable, which encourages his clientele to come to him. He typically makes 3-6 deliveries a week, usually on the weekend. When asked if “Product A Customers” were easier to deal with than “Product B Customers” he was energetic in his assent. Although his profit for B is much greater, the client base is smaller and the patrons less reliable. John notes that his “B Customers” are more difficult & demanding, but that the profit more than makes up for the added hassle. As the graph shows, John sells twice as much of A as B, but his income is still about twice as high for B.
· John estimates that he spends 10-50% of his waking time, on any given day, at his business. He acknowledges that this places his hourly profit at minimum wage levels at best, but enjoys the autonomy of being his own boss.
· John believes 90% of his sales are for his customer’s personal use, with 10% being re-sold.
· Yearly profits are estimated at $15-20,000 a year(lack of records makes exact tallies difficult). John’s stated goal is acquire $100,000, but he has no plans to quit the business reaching that sales level
SUPPLY CHAIN
· John deals with 3-4 long-term suppliers. All carry both products. He states that it is easy to find more suppliers but difficult to find reliable ones. He notices that scarcity and over-abundance in the market seems to affect all suppliers more or less equally. As far as work ethic, 3 suppliers work in this field full-time. John does not believe that any of them are importers. All business with them is conducted face-to-face, with only vague details of amounts mentioned over the phone prior to meeting. John meets with a supplier approximately twice a month. The supplier usually delivers & makes approximately 10% on each order, John thinks.
· When asked about the supply chain & origins of A & B, he notes that most of Product A is believed to originate in BC, Canada, while B is undoubtedly South American and the supply is controlled by illicit Mexican elements. Therefore he notes, the supply of B dries up around Christmas, Easter and during other major Catholic festivals, when these elements often return to their home country. In support of this theory, the price of B varies in direct proportion to the distance from Mexico(indeed, South America) where it is sold. He estimates he is 4-5 middlemen away from the actual importers of both A & B.
· An obvious way to make a greater profit in the retail business is to “jump the supply chain” by eliminating as many middlemen as possible. Unfortunately, John states that this is only possible when purchasing an absurdly large amount of A or B, usually 20 or more times the standard amount. John prefers not to take the risks associated with such large purchases & dislikes having large amounts of inventory on hand. This is the reason he does not lower his per-unit costs by purchasing in larger, bulk amount. In addition, apparently Product A has a certain “Tolerance Factor” built into it, encouraging John to purchase various varieties.
· Almost all of John’s customers have multiple suppliers, forcing him to keep his prices low.
DEMOGRAPHICS
John’s suppliers are all Caucasian Seattleites, his approx 35 main customers are 96% white & aged from late 20s to 50s. John tries to sell to an older, more reliable crowd. He places his average Product A customer at 27 years-old and Product B at 32. 5 years ago he estimates that he had 15-20 customers. He is happy with the number of clients he has now, preferring slow growth through word-of-mouth.
SUPPLY/DEMAND FLUCTUATIONS
· Both items become less accessible at varying times in the year. Product A, being vegetative, typically becomes scarce in Summer, John believes due to the heat damaging crops. This “dry spell” of several days on, several days off often lasts from July to halfway through October. Product B typically becomes scarcer around Christmas time. It is apparently very rarely completely unavailable. Instead, the price stays at normal levels but the quality is typically reduced. John notes this phenomena occurring regularly—the price of these two products has been steady for (10 yrs? 20??) but their quality fluctuates according to their availability.
· When asked how the two goods in his inventory respond to long-term storage, John stated that he did not know, never having to store A for longer than 3 months and B even less. He purposely keeps only medium-sized amounts on hand, for security reasons.
ACCOUNTING SYSTEMS UTILIZED
All accounting details are memorized by John himself, with only phone numbers on paper.
SECURITY
John is legally armed & physically intimidating, but credits his good judge of character as the best business skill he possesses. In 25+ years of associating himself with A & B consumers he has never had any need to “get physical” with any of his friends or customers. Numerous times he has had to “cut off” unruly customers before they became a security risk, and he considers himself highly selective of his customers. He prefers middle-aged, reliable, mild-mannered urban-dwellers to young, unruly suburbanites. His place of business is neat & clean, his inventory secure and difficult to locate.
ALTERNATIVE MEANS OF EMPLOYMENT
A list was made of the benefits to John’s life if he were to give up his side business & instead focus on bettering his life in other ways.
· Plusses would include; Daylight hours, a regular job, less security concerns, more reliable friends, ability to focus on an improved career, additional money from such a career, possible long-term female companionship from such a stable life and being relieved of the necessity to fear for one’s life or freedom on a daily basis.
· Minuses could include; waking up early, a regular job, loss of prestige among his friends, loss of income in the short-term, perhaps a diminishment of the fun of living “amid the scene” and spending $100 a month for personal amounts of A & B.
JSRD FUTURE BUSINESS PLANS
John has no major changes in mind for the future. John’s market strategies are not unorthodox, given the unusual legal situation pertaining to his business. He plans to continue expanding his network very slowly, Realizing the potential danger of large amounts of on-hand inventory, he eschews large purchases and sales and instead sets his sights lower & on the long-term. John has several reliable friends available to help him by paying for legal help or other support should such become necessary. He has several large sums of money available from various resources & locations. On an unrelated note, John states for the record that he is in favor of legalization of Product A but, strangely, not B. Irregardless, he intends to sell both, even if legalizations were to ever occur.
CONCLUSIONS
Mr. Smith’s business is unusual in a number of ways important from a business standpoint. Firstly, he can not advertise through normal channels & can only rely upon word-of-mouth and carefully vetting every potential customer and supplier. Secondly, he has expressed a strong desire not to expand his business materially past current levels. He believes the element of risk involved to be too great for the potential rewards. This element of risk is inescapable throughout his business and affects John’s decisions on a daily basis.
REPORT RECOMMENDATIONS
Considering the industry our subject has engaged in, major modifications to his future business plans would be unwise. Aside from totally divesting himself from any connection to this industry, the next-best recommendation would be to approach the subject as seriously as possible. Careful perusal of relevant legal texts(both formal & informal), as well as acquaintanceship with a lawyer who specializes in this field would be wise. At a certain point, purchases of larger amounts of inventory should be made to take advantage of bulk discounts. Off-site inventory storage could possibly help alleviate security concerns. Another idea would be to purchase a more discrete delivery vehicle & take steps to ensure the privacy of his place of business. At a certain income level, plans should be made for “retirement” outside of the United States, in the event of a legal calamity.
