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Tanner Montague came to town from Seattle having never owned his own music venue before. He’s a musician himself, so he has a pretty good sense of good music, but he also wandered into a crowded music scene filled with concert venues large and small.But the owner of Green Room thinks he found a void in the market. It’s lacking, he says, in places serving between 200 and 500 people, a sweet spot he thinks could be a draw for both some national acts not quite big enough yet for arena gigs and local acts looking for a launching pad.“I felt that size would do well in the city to offer more options,” he says. “My goal was to A, bring another option for national acts but then, B, have a great spot for local bands to start.”Right or wrong, something seems to be working, he says. He’s got a full calendar of concerts booked out several months. How did he, as a newcomer to the market in an industry filled with competition, get the attention of the local concertgoer?

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by Andrew Tellijohn
June 2005

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Strength in numbers


Strength in numbers

Small firms band together to outsmart big competitors

by Sarah Brouillard   There was a buzz among customers at Brewberry's Coffee Co. last summer, though not the usual kind that comes from drinking caffeine.

They were all chattering about the ongoing renovation of the building across the street, in full view from the windows where they would sit sipping their mugs of joe. What concerned them wasn't the construction progress so much, but the expected end product: A Caribou Coffee, slated to open that fall, which would brew up some direct competition for their beloved neighborhood coffee shop for the first time in its 11-year history.

Everyone — including owner Jan Nelson — wondered how the small business would fare in the shadow of such a giant chain. Many loyal locals pledged their continued, exclusive patronage. Some wrote angry letters to the local newspapers, decrying what they perceived as an unnecessary rivalry pitted by a fellow Twin Cities-based company.

Others had a more practical approach. They brainstormed ideas for updating the shop's appearance, to get it on par with the fancy, colorful digs of the new Caribou, and referred Nelson to consultants who could help her realize some new plans for her St. Paul shop.

“I had about a three-inch stack of suggestions,” says Nelson. Tapping into her large network of friends and customers, she soon discovered, would make all the difference.

Through a friend, Nelson was connected with renowned Home and Garden TV designer Cy Winship. On a limited budget, he helped her “figure out some fun colors to make it a little bit more funky, a little more updated,” without altering the look and feel too much. As a result, the interior has new lighting and chairs, brighter painted walls, and an upgraded counter for the bar.

Then Nelson turned her eye to the nondescript exterior. The building, a former gas station, didn't pop out like Caribou's. A plain corner sign, simply stating “Brewberry's,” made it unclear what kind of business it was.

Through some more customer referrals, Nelson was led to a big-set design team that emblazoned Brewberry's Coffee in huge, blindingly white letters across the building's front. And, in case there was any lingering confusion, she added the label “Neighborhood Coffee Shop” on a side wall, per another friend's suggestion.

The changes, along with new customers and renewed support from her existing customer base, have made Caribou's impact negligible, says Nelson. Though she won't reveal her financials, “business is very, very good.”

Like Brewberry's, finding strength in numbers has been a useful — and sometimes ironic — tactic for a handful of other Twin Cities small companies that go toe-to-toe with larger competitors.

Collective power
After constantly being left out in the cold by choosy manufacturers who would give first dibs on furniture lines to large companies, Rose Lebewitz found her strength in numbers four years ago when she was invited to join Contemporary Design Group.

It’s a national bloc of small independent contemporary furniture retailers that gives its 32 members a collective buying power and clout similar to that of a Marshall Field's or Gabberts.

Up until then, it was a bumpy ride for the owner of Rosenthal Furniture, her family's 110-year-old furniture store in downtown Minneapolis. Originally a traditional furniture discounter, the market got so crowded with the likes of HOM and Slumberland's that Lebewitz felt demoralized shortly after she took over the business in 1999.

Though they might not always compete for the same customers, big and small furniture retailers play tug-of-war with each other when vying for manufacturers' furniture lines. Big companies almost always win because they have the potential to buy and sell more units, and they are sources of huge revenue. Small stores don't have that same kind of swagger, and often find themselves waiting on hold while manufacturers' sales reps speed-dial the bigger players in their territory.

“I used to be a little guy in a big world of furniture,” says Lebewitz. “Anyone who's big has first choice of everything. So it used to be disappointing, disheartening, and it wasn't fun anymore.”

An alley fire the same year she assumed ownership stunk up most of her inventory. Rather than close for good, she took the clean slate provided by the fire sale, and began stocking the store with the funkier, more modern designs of contemporary lines.

This move might have eliminated most of her brushups with the big-box furniture outlets, but it only opened the door to different competition: high-end furniture retailers.

As a small business, “there's always someone who's more important than you in the area,” says Lebewitz.

Banding together with similarly sized companies has leveled her playing field for good. With Contemporary Design Group, Lebewitz gains access to products made expressly and exclusively for members, and negotiates prices with 500-pound gorillas like popular comtemporary furniture manufacturer Natuzzi.

In exchange, she pays dues of $5,000 a year, on top of a $6,000 upfront membership fee. Revenue for member-companies ranges from $1.8 million to $7 million. Decisions are settled by vote during three annual meetings.

She's free to strike deals on her own, which occasionally still gets her the cold shoulder. But she's not tossing and turning at night about it the way she used to. “It's such a pleasure to sit back and say, ‘I don't care anymore what the big guys do. I just run my own business.’ ”

New group forms
Business alliances are increasingly becoming a vehicle for small businesses to gain more influence.

This spring, a group of Twin Cities small independent businesses founded its own strength-in-numbers organization, the Metro Independent Business Alliance (MIBA), to create a platform equal to the ones occupied by larger companies.  It isn't adversarial. The prospective executive director, Merritt Clapp-Smith, says she doesn't like the phrase “us versus them…It's not about bashing chains, it's about promoting independent businesses.”

All industries are welcome, but membership is limited to companies within the Twin Cities metro area, whose owners live locally. Size also matters: too many locations means you're too big, though the cutoff is still being negotiated.

Following the lead taken by the American Independent Business Alliance, its larger national umbrella organization, the purpose of MIBA is three-fold: to provide a forum for networking amongst small-business owners; to promote consumer education, by talking to the public about how their purchasing decisions affect the economy, but especially small businesses; and to create a unified lobbying voice for state and local business policies. Houston and Boulder, Colorado, also have AMIBA groups.

Michelle Cromer-Poire, co-owner of The Red Balloon Bookshop in St. Paul, was a member of the steering committee to get the group on its feet. An early meeting, held March 31, was attended by 15 business owners; the other 25 attendees included members of the St. Paul Green Party, a Roseville city council member (the meeting was held in Roseville), an attorney, and a representative of the Minnesota Retailers Association. Most of the time was spent writing and editing bylaws, and making arrangements to collect the first round of dues.

Cromer-Poire, in particular, says she's concerned about Grand Avenue, a mainstreet of small independent shops and boutique stores that has added many chain stores over the last few years. “I've seen the complexion of the avenue changing,” she says.

Cromer-Poire has felt the changes on the avenue firsthand. Her children's bookstore competes directly with Bound to Be Read, a 14,000-square-foot bookstore that opened across the street in 2001. Though not a chain — it in fact advertises itself as the Twin Cities largest independent bookstore — the store is owned by the Hubbard family, which also owns the $250-million media empire bearing its name, Hubbard Broadcasting. (Ironically, Bound to Be Read owners announced in April that they would be closing the store by July 27, citing too much competition from many sources.)

Since its inception in 1984, Red Balloon has hosted 10:30 a.m. storytimes on Saturdays and Wednesdays. Now, Cromer-Poire and co-owner Carol Erdahl have multiplied that roster, though they have just a sixth of the space of their competitor.

As for inventory, children's books is still the mainstay, although there are more so-called remainder books on shelves. These discount overstock books were once scattered through other parts of the store, but in a recent strategic move, staffers moved the books to the front, similar to large chains such as Barnes & Noble and Border's.

“We just had to rearrange things a bit, and the sales of those books increased tremendously,” says Erdahl. “It's something that we felt needed to be done. I suppose, in a sense, it's to compete with what they're doing…We said, ‘Well, they seem to think that might be a good idea, let's try it.’ ”

How these additions have affected the bottom line is unclear, but the two women report increased sales year over year, as well as profitability. “Things have not been going downhill for us,” says Erdahl. “They're continuing to grow, though it takes extra effort.”

Spending on marketing
When it comes to strength in numbers, conventional wisdom might tell Bert Notermann, owner of Eden Prairie-based Lions Tap, that he has a distinct disadvantage in a town overrun by fast-food chains.

For what he lacks in physical presence, though, he's compensated with a huge, effective marketing budget that's won his business a reputation as a destination spot, not just in the Twin Cities but across the state.

His advertising arsenal includes novelty hats, T-shirts and bumper stickers that have been sighted overseas. And folks driving outstate are bound to catch a glimpse of one of his many highway billboards.

“I spend probably two to three times more on advertising than other businesses of my size,” he says. His company grosses between $2 million and $4 million a year. “I figure that advertising is a fixed cost of running a business.”

That's a far cry from the time Notermann took over the burger joint in 1977. The previous owners ran it as a mom-and-pop shop, and had no advertising budget. Though he probably could have gotten away with a similarly conservative strategy, Notermann instead invested right away in a “gimmick,” he says. His brainchild was the buy-one-get-one-free hamburger coupon.

To others at the time, it seemed like a foolhardy tactic, he says. “All of the books said, you don't do that. You don't give something away for nothing. That's cheapening your operation. Well, everybody's doing it now. Whether it's a little company or a big company, they're all offering a lot of things free to get people to come in.”

The Eden Prairie population explosion, to more than 50,000 today, has helped grow his business, but it's also beckoned numerous other burger joints, including Burger King, McDonald's and Wendy's.

They haven't hurt his bottom line; if anything, their strength in numbers has helped. “Basically, I've got a $1 million advertising budget for nothing,” he says. “McDonald's is a big franchise, spending a lot of money telling people to eat hamburgers. I'm a beneficiary of that.”

[contact] Michelle Cromer-Poire, Carol Erdahl, The Red Balloon Bookshop: 651.224.8320; redballbks@aol.com; www.redballoonbookshop.com. Rose Lebewitz, Rosenthal Furniture: 612.332.4363; info@rosenthalfurniture.com; www.rosenthalfurniture.com. Jan Nelson, Brewberry's Coffee Co.: 651.699.1117. Metro Alliance: miba.idcwebdev.com, miba@idcwebdev.com. Bert Notermann, Lions Tap: 952.934.5299; info@lionstap.com; www.lionstap.com.