Retail dreamers

Part I of II

(Editor’s note: This is the first of two stories on young entrepreneurs. These couples with kids thrive on managing a dizzying swirl of multiple businesses. We interviewed them separately. First you’ll hear his perspective, then hers. In Part II in a future issue, you’ll hear the stories of another retail couple in Santa Rosa.)

Some entrepreneurs make the risky realm of retail look easy.

Shane and Sacha Sterling opened Karma Clothing store selling women’s upscale clothing in Sebastopol in September 2014 and immediately put the business up for sale for $195,000. Neither owner works in the store; a manager handles day-to-day details. The couple, with girls ages 4 and 6, see themselves as retail visionaries in west Sonoma County. They plan two more retail openings later this year: a café and a frozen yogurt shop.

Remarkably, the Sterlings already have an interested buyer who plans to close a deal for the Karma store by April without a single year of proven sales or profits. The business pulled in nearly $30,000 a month in its first holiday season. The store location – with a long display window beckoning shoppers as they traverse a walkway to two upstairs spas and the Dhyana Center yoga studio across from a Whole Foods store – is favorable. The store enjoys good odds in the fluky retail business domain.

This is the second foray into Sebastopol retail for the Sterlings. Their first store, Funk & Flash, located about three blocks south on Main Street, was initially Mr. Sterling’s creation, launched five years ago based on his gift for picking fashionable clothing. After putting the store on the market for $90,000, they found a buyer in about a week, with formal transfer of ownership on Feb. 1 to Jared Milligan, founder of Pacific eDocument Solutions, a document scanning company with locations in Petaluma, Novato and San Francisco.

Him

“The buyer calls me the clothes whisperer,” Mr. Sterling said of his keen sense for fashion, chuckling about Mr. Milligan, the new owner, who has not worked in fashion but was a regular customer. “I have an innate ability to understand not only men’s fashion, but women’s fashion just as well. My women’s boutique, Karma, is a beautiful example. I not only understand the clothing, but I understand how to communicate with women in the context they want to be communicated to. They want a sense of ease and luxury and comfort when they’re shopping. For them to feel comfortable spending $250 on a pair of earrings, they really need a luxurious-feeling container for that.”

Funk & Flash, with intriguing clothes for women and men, what Mr. Sterling calls “a party vibe,” had gross sales of nearly $400,000 in 2014 and profit of $80,000. He opened Funk & Flash in 2009 to capitalize on the offbeat fashion appetite of folks who gussied up for the Burning Man celebration every year then wanted to perpetuate the festival’s fun, free-spirited atmosphere. “I understood the market really well,” he said. “There was no risk for me to undertake a clothing retail enterprise. I had it completely locked down.” But while Mr. Sterling’s knack for Burning Man fashion never faltered, he burned out on running the business, he said in an interview next to the store’s cash register.

As many retail business owners discover, even a small operation gobbles time and energy, leaving its owner depleted no matter whether profits materialize. If the operation loses money, pressures mount more rapidly and with greater intensity.

“I have looked at so many businesses over the years and thought, this person has no idea of their market,” Mr. Sterling said. “They have money. They have a dream. They have hopes. But the reality is different. It’s not easy.”

From a business standpoint, “retail is the hardest gig,” said Mr. Sterling, who is 42. “But if you have a family to support, and a passion and understanding of a specific market, hey, I busted my butt for three years. I was here seven days a week, 10 hours a day, all myself.”

Finally he was able to take a day off occasionally and hire help. “I didn’t have the option of failing. The only security you have in retail is that you are so committed. You’re gonna do the grunt work – whatever it takes to keep the doors open. You’ll be the sales staff, the buyer, the janitor, the one who does everything it takes. That was me for a lot of years.”

The hard work paid off. The Funk & Flash brand, which peaked at $500,000 in sales under his management in 2012, will likely do well under its new owner.

“My new store Karma is a distilled version of Funk & Flash,” he said, “everything I have learned over the five years of doing retail. It’s more refined, simple, effective, destined to be more profitable. It’s targeting the exact demographic in Sebastopol who have money to spend.”

The location for Karma, he said, was selected by Ms. Sterling. “She has been there with me every step of the way with Funk & Flash. We are a power couple,” he said. “The way we put our heads together is unstoppable.”

He calls Karma “a great blending of both of us. I stepped back and allowed my wife to come in and influence Karma from the ground up, with a woman’s touch. She is gaining so much enjoyment out of the management process. She is a woman running a woman’s boutique. I am able to back off a little. That is a gratifying situation.”

They plan two new businesses and brands, a coffee shop and frozen-yogurt shop, to be located first in Sebastopol. They are negotiating a lease with Coddingtown for a second yogurt shop location. The first, to be called ToppingTown USA, will go into a space at Bodega Highway and Pleasant Hill, heading west out of town, where a 7-Eleven is located. “The sugar market,” he said. “That’s literally what it is. We chose frozen yogurt as a vehicle for sugar very consciously, not because we want to run a frozen-yogurt shop, but because we want to specifically target a very unfiltered market.”

The coffee shop will likely be called Out of this World, a name already in use in Toronto, Canada. “It’s going to be warm and inviting, and quaint and cute,” he said. “We’re building it to flip it. We’re going to put it up for sale within the first month. We want to build a quality business for someone to buy.”

Retail clothing entails a more restricted “filter” for customers, who must be drawn to garments in the right fashion, taste, color and size, he said, “filtering out huge portions of the potential market. Everyone eats sugar: young, old, big, small.”

Retail clothing offers about a 50 percent profit margin, Mr. Sterling said. “We are going for a higher profit margin, lower-management market. Our plan is to flip them. We are building them to sell.” The profit margin on frozen yogurt can be 70 to 75 percent.

The Sterlings, dedicated autodidacts, devour the rich-dad books of Robert Kiyosaki, effective-habits writings of Stephen Covey, awakening-giant-within advice of Tony Robbins. “Wealth is never going to come from a highly managed, seven-day-a-week retail store,” said Mr. Sterling, who doesn’t want to manage retail any more. Rather, the plan is to invent brands and stores then sell them quickly. Ultimately, he seeks passive income from rental real estate and investments. “The glamour of Funk & Flash and the glamour of Karma don’t point to my ultimate goal of passive income. I’m looking for a 16-unit apartment complex,” he said.

“It has worked,” he said. “It’s been an exciting ride. Retail’s ups and downs are thrilling in a way, but despairing when they dip. That roller-coaster ride is the opposite of passive income. I have young children. I need to create stability for them and myself as well. How do I get off this roller-coaster? I never built my exit strategy into Funk & Flash because I was a kid, hustling out a business.”

In the first few months after Karma’s opening, he observed customers as they discovered the place. “Who was spending money in the first three months,” he said. “Who is that demographic?” There is almost zero crossover between the Karma buyer and the Funk & Flash buyer. I have removed the crossover lines of clothing,” Mr. Sterling said.

For awhile, “the same line that I would sell to a 24-year-old girl here I would sell to a 54-year-old girl there. The 54-year-old woman doesn’t necessarily want to come in Funk & Flash. It’s not exactly how she wants to be communicated with. The music is too loud. This is like taking a little bit of the city vibe for a country town, not going too far, because it will freak the country town out. I like to contribute to the culture of a town. If I can make Sebastopol a cooler place, a more hip place, put it on the map,” that’s one of his overarching goals. He has lived in Sonoma County since 1985.

Funk & Flash carries goods from nearly 120 clothing suppliers and designers, including 60 local to the Bay Area. He left his entire supplier list for the new owner. The top-selling “10 we decided to extract out of Funk & Flash, and then rebrand a retail store for those designers,” he said. “I had five years to test all the different labels.”

Funk & Flash had half its floor space dedicated to men’s clothing, but only a quarter of sales came from the men’s side. The new store has no clothing for men. “Sorry guys, you don’t spend the money,” Mr. Sterling said. Actually, a few men do. “I get the most fashionable guys in the county who come in here,” he said. “That’s very gratifying.”

He considered putting another Funk & Flash store on Haight Street in San Francisco, where it would likely do well, but decided against expansion. It’s tough to manage from afar. “I had big, grand visions of Funk & Flash being a chain,” he said, but decided it was smarter to stay small.

“It’s a volatile market,” he says of retail clothing, “a shifting, trending market. You’ve got to keep your finger on the pulse.”

Having Ms. Sterling run the Karma store challenges his sense of business control. “It’s very much a joint project, but I have allowed myself to take a back seat, let her drive this one,” Mr. Sterling said. “I am a little fried. The controlling business creator that I am – what if I am not in the driver’s seat? Is it going to crash and burn? As long as I am steering it, I know I am good. It has been a learning curve for me getting out of the driver’s seat.”

His biggest mistakes at Funk & Flash: he did not hire a manager. “I get emails. I get phone calls,” he said. “It’s exhausting. I’ll never do that again. I will insert a trained manager in every business I do from here on out.” Karma had a manager from day one.

He started and ran the store for years without a point-of-sale inventory-management system, finally installing one in 2014. For years he used note pads and binders, a manual system. “Absolute nightmare,” he said. “It got so overwhelming that I was forced to install a POS out of sheer desperation,” and settled on a Mac-based Lightspeed program. Karma is set up on a cloud-based POS system. “You can be in Monaco on a yacht and managing your business via the Internet,” he said.

“As a small business owner, your peace of mind is so important,” he said. “You can build a business that alleviates pressures on you. You have to set that structure up. When I hit my peak of burned-out-ness,” in mid-2013, “I could no longer show up because it was a liability,” he said, chuckling. “It’s OK. I don’t feel guilty about it. It’s just a learning process. As soon as I stopped creating with Funk & Flash, I got depressed. I got burned out. That was the feedback.”

He was itching to create a new brand, new retail establishment, and that entrepreneurial urge was thwarted by day-to-day pressures. “I’m moving on to my truer nature,” he said. “The universe is conspiring to help me. I’m doing what I’m supposed to be doing.”

Her

Co-founder of Karma Clothing store in Sebastopol, Sacha Sterling said the store was initially destined for Santa Rosa. She and her husband Shane scouted for locations. “We happened to find this spot,” she said of the storefront on Main Street, so they decided to stay in Sebastopol where their first store, Funk & Flash, is located.

“When I met Shane, he had already developed the branding for Funk & Flash,” Ms. Sterling said. “It was very much about being different and making a statement.” With Karma, her intention was completely different. “We wanted to not stand out, but complement the branding that was already in the building,” she said. “It’s capitalizing on the business that’s already happening.”

The Sterling family lives in Sebastopol a few blocks from the Karma store. “We’re invested in this town,” Ms. Sterling said. “Our kids go to school here.”

Funk & Flash started in 2009 as a hand-picked vintage clothing shop with no new products. That structure required Mr. Sterling to spend considerable time on the road hunting for cool vintage clothing that would sell. “That was his passion for the last 12 years,” she said. “When I met him,” seven years ago, “he was scouring the state. He would even leave the state to find one-of-a-kind picks. That’s what Funk & Flash was based on,” revival of 1970s fashion and artistic design, articulated in a 1974 book called Native Funk & Flash: An Emerging Folk Art by Forestville-based author Alexandra Jacopetti. With Ms. Jacopetti’s blessing, he named the store Funk & Flash.

“Our clientele were festival-goers,” she said of Burning Man customers. “That was not sustainable. After two or three years, Shane couldn’t find enough clothing to supply the store.” In a transition ending about 18 months ago, they switched entirely to lines of new clothing, much of it from local designers.

“The town had supported us as a vintage store,” she said, and they wanted to migrate inventory to entirely new clothing. The shift created confusion in customers. “That has been the main tension,” she said. The new owner of Funk & Flash plans to expand into an online market.

Funk & Flash was “one variable, volatile income source trying to provide for a family of four,” she said. “We thought that would be enough.”

With no business training, they merged personal and business accounts, operated without a business plan. “We jumped into the deep end of the pool and made all the mistakes. We had no idea,” she said. “No one in our life had done it. We didn’t know. About two years into it we got to that place where it was really stressful.”

“We had a huge aversion to numbers,” she said, before they harnessed a point-of-sale system. “We had no business background. But it’s obviously what we’re destined for. We look normal on the outside, but we have no clue about so many things.” They learned to laugh at their foibles. “There’s a whole big world of business out there, and we want to be part of it.”

Mr. Sterling absorbed more of the stress. “He got really burned out,” she said. “He’s an extremist, a perfectionist,” qualities that can be both gift and curse. “Then we cleaned it all up, did the business plan, got a bookkeeper.” They changed the business structure from a sole proprietorship to an S-corporation.

The burden wasn’t lifted until they “committed that we were going to start Karma,” she said. With their children older and in school, “now is the time when I’m back in the game more. I’ll be able to shoulder some of that” business pressure, even though Mr. Sterling remains an integral co-creator of the store.

Ms. Sterling, former editor of her high school newspaper and former life coach for women, has remarkable sagacity as a retail business owner. She quickly identifies patterns and opportunities. The choice of location for Karma was hers.

“With Karma, we were really excited to pull the best brands on our POS, the top sellers, extract that and create a brand to sell those brands” plus others, she said.

“The over-30 market in Sebastopol – I know as a woman how I want the experience and context to be, how I want to be catered to, how I want to feel. I don’t want the shopping experience to be challenging or too loud.”

She’s just entering her own market, turning 30 soon. “There are so many beautiful, fit women over 60 in this community who have money,” she said, also part of her market. “They want to shop in a boutique environment.”

She identified three keywords that govern the Karma brand: romance, elegance and ease. “The filter for Funk & Flash is very different from the filter for Karma,” Ms. Sterling said. “We’re going to filter all our choices through those keywords.”

In January, she and her husband scouted Sausalito for a possible second Karma location. “We designed Karma to multiply it ourselves – systematized, already completely hands-off – it could easily be three locations within a year,” or to sell it. A third location they are still debating: possibly Berkeley, Mill Valley or Healdsburg. “We would only do that to be able to sell it for a higher ticket price within 12 to 24 months,” she said.

“We have a potentially interested buyer already,” she said, “which is exciting.”

The open-then-sell strategy is not new for her. A few years ago, she opened a children’s consignment store called Butterfly Kiss down the street and sold it when she got pregnant with their second child. The owners changed the name to Pixie Stix.

“Now that the girls are four and six, I’m jumping back in right where we left off,” she said. “Ultimately we want to get out of retail clothing” and into rental real estate.

“Both of us came from nothing,” she said. “We were just gypsies. What does it mean to create a foundation, a legacy, something to pass on to the kids so that when they are in their twenties, they can breathe a little bit easier. That’s our main, compelling reason.”

They are exploring investments in over-age-55 mobile home parks.

Meanwhile, she and Shane are well along the path to opening their first Out of this World coffee shop and ToppingTown USA, a frozen yogurt shop. They have signed leases on both, and are seeking operating permits. A second ToppingTown location could open by September in Coddingtown. “We’re waiting on funding for that,” she said.

“I have done a lot of reconnaissance,” she said about the Pleasant Hill Road first location, noting that a Buddies Pizza store has been at the corner for 10 years, along with a 7-Eleven. “That parking lot is filled all the time. There are soccer meets down the street from all the way through the county,” she said. “People pull in there to get pizza and slurpies. It’s so under-the-radar that I think it’s going to work.”

“I love frozen yogurt,” she said. “I’m thinking about how I am with kids. It’s really hard to stop and get snacks in town where there’s no parking. So I go out of my way to go to the place that’s convenient. If one of the kids is napping in the car, you can pull right up.”

“People like sugar,” she said. “Sugar is an easy sell. One cup fits all. That’s our motto now. With clothing, it’s trickier. It’s a huge filter. Not everybody wears the same style or fabrics or fits, different sizes.”

A buyer has expressed interest already in the coffee shop, even before it opens its doors, she said.

After growing up in San Francisco surrounded by retail commerce, she studies and absorbs business patterns effortlessly, and listens to several audio books a week. “I have a lot of initiatory energy,” she said. “The next two years are all about creating a little bit of peace financially.”

She sees their strength as initiating retail business, “branding it effectively, creating the container and the environment, creating those filter words. We’re going to be taking that on as our new role, creating businesses and selling businesses. Maybe we’ll love it so much that we’ll just keep doing it.”

Both originate business ideas. “We can go nonstop,” she said. “We fuel each other. I have my strengths. He has his.”

So far, they’re focused on small-town businesses. “But at some point, maybe we’ll be growing to the place where we’re creating companies and selling companies,” she said. “It’s hard to tell. I don’t like to force destiny.”

When the Sterlings travel together, they are drawn irresistibly to contemplate the retail potential of any empty store they spot. “We are not maintainers,” she said. “We are initiators. We are growing right now. Not everybody is open to talking with us. Sometimes we have a little too much energy for people,” she says, laughing.

Her four-year-old daughter soaks up the entrepreneurial energy as well as the audio books, and recently told another little girl at preschool, “It’s OK Amelia, just change your state.”

Until recently, they home-schooled the girls. “We both share the kids” in a balanced way, she said, though when they were younger, she did most of the parenting, and “he was all at Funk & Flash.” Now he sometimes takes the kids to school and picks them up.

“We bring them with us,” she said of their forays. “They are part of the discussion” about business possibilities. The 4-year-old has lobbied to name the frozen yogurt shop Lemon Drop. “We drag them everywhere to look at spaces,” as well as to hundreds of real estate open houses.

“It’s one big experiment,” Ms. Sterling said about the process of business creation. “We don’t know how it’s going to all work out.”

She doesn’t know what they will do if Karma sells at the $195,000 price they seek, or if it doesn’t sell. It doesn’t matter. They’ll be happy to keep the business and grow it. “Do we maintain the pipeline and let it cash flow for us? I can pivot my excitement toward anything,” she said. “What will we do with the money? We would never want to sell it and just squander it away or let it sit. We have to already have a plan.”

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