Real Estate Financial Modeling

Why The Regus Executive Suites Business Model Will Never Work For Retail

by Bruce Kirsch on June 15, 2013

The other day I was pitched by a group who wanted my thoughts on their startup business idea.

The pitch was in essence “Regus for retail”, which meant that they wanted to rent an existing retail space in an urban core, and then create stalls for different startup retailers. A multi-tenant variant of pop up retailing.

They felt that they could get disgustingly high rents on a per square foot, shorter-term, flexible basis the same way Regus and the other executive suites players get hundreds of dollars per foot a year for their serviced offices.

The first thing that popped into my head when hearing the pitch was “flea market”, and how flea market merchants were all essentially startup businesses, and how flea markets take place on real estate that is essentially worthless.

The next thing was the inevitable clashing in a closed-air urban retail space of the selling activities of the various retailers: auditory clashing (the startup $10 smoothie vendor blending furiously over the classical music merchant), the olfactory clashing of the dude sizzling bacon for his righteous paninis, the visual clashing of the vendor with a cheap vinyl banner vs.the higher-level presentation of their adjacent tenants.

The critical concept that was lost on these entrepreneurs was that retail is a external-facing activity, vs. office use being internal-facing, and generally quiet and insulated.

The complexity of the mini-leases and the constant re-marketing of the unoccupied spaces, all for a staccato rent stream, probably isn’t worth it. No lender would want to take a risk like this, and no urban core building owner would want a revolving-door circus like that on their ground floor, at least not over the long term.

While I am all for improvement and innovation in the real estate business, often times things are the way they are for good reason.

Thoughts?

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Posted in: Model for Success, Retail

The Most Important Thing That Has Never Been Taught In Business Schools

by Bruce Kirsch on June 15, 2013

Selling skills.

Anyone can change a revenue growth rate assumption in Excel from 2% to 3%. A monkey could do that, too.

But while you can’t teach a monkey to sell, you can teach a business school student to, but business schools see it as beneath them to do so, and they don’t provide any formal training in it.

Well, this is really unfortunate. Can any business survive or thrive without strong sales? Not so much.

Yet the current state of affairs is that tens of thousands of newly minted MBAs and Masters graduates come out of school each June, and most have zero understanding of or appreciation for how to pitch a product or service to a sales prospect. They don’t know how to think about or structure a sales pitch, in writing or verbally, and if you put them on the phone with a prospect, it would be an absolute disaster. This lack of training is honestly doing the students and the businesses where they land a huge disservice.

All schools conferring any business-oriented degree absolutely need to require all their students make cold-calls for a full week, 8 hours a day, so the students learn what it takes to make a sale, so they have respect for the sales function and sales professionals, and so they think critically before changing that revenue growth rate assumption so casually and quickly.

Thoughts?

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Posted in: Model for Success

How The U.S. Government And Universities Can Spur Job Growth Through Encouraging Entrepreneurship

by Bruce Kirsch on June 14, 2013

If entrepreneurs create most of the jobs, then we need to create more entrepreneurs. Most will fail, but we need to encourage as many as we can to try, to the fullest extent we can.

What have been and continue to be the barriers to entrepreneurship? Can we fix them?

Lack of education. Educational content, especially about business and entrepreneurship and fundraising, has been unleashed online. I don’t accept this as an excuse any more.

Lack of mentorship. Why hasn’t there been an Entrepreneur Mentorship project put online yet by the Obama administration? Not everyone lives in a major city with tons of potential mentors. Let’s get this up and running, and let’s get the successful business founders (still working, and retired) enrolled and actively participating. 15 minutes a week online with 1 mentee for 4 months. It could be up and running in a week. Get it done, please!

Lack of startup capital and marketing capital. I accept this less as an excuse because of Kickstarter and its various online brethren, but it is always a big issue. That said, capital chases good opportunities, so if you have something worth investing in (from the eyes of the investor, not from your vantage point) and you are willing to give a pound of flesh, then you should be able to get some capital.

Lack of personal savings for personal cash flow. This is a real issue. Kickstarter et. al. fundraising campaigns need to include budgeted funds for living expenses, not just product development costs. If you’re going to ask for money, ask for the money you need to go the distance to quit your job so you can focus on your venture, and so someone else can fill your job.

What incentives can be better provided to aspiring entrepreneurs who end up creating new jobs?

Universities can provide loan forgiveness. I’m probably the last person to have heard the expression, but due to the size of its endowment, someone described Harvard to me the other day as a “hedge fund with an educational non-profit arm.”

If you graduate from a school with educational loans, and you bust your butt and take on risk and make investment and end up creating lasting jobs, you should be rewarded by being relieved of at least some of your educational debt. You’re helping society, and you’re helping the economy, as a representative of that school. It’s phenomenal PR for them. Your school should reward you.  It’s the best fundraising action they could ever take, instead of pelting you with fundraising mailers and calls and emails that you routinely dodge.

The government can provide tax breaks.  If your company creates lasting jobs, your company should be rewarded with tax breaks for every job that you create.

I’m not a policy person, but there has got to be a way to structure this and sell it in Congress.

Thoughts?

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Posted in: Jobs, Macroeconomics, Model for Success

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