How to Build an Investable Salon Business
Truth be told, a salon business is one of the more difficult businesses to run successfully, because each aspect of it has a significant degree of hardship. It is a service business with a human rather than products at both ends – a service provider and a Customer.
Vikram Bhatt, Founder & Director at Enrich
It looks glamorous from the outside, and at first glance it seems like the margins must be humungous. But if you look at everything that you have to do to create and sustain the Customer’s experience and the related costs, you realise that the margins are thin. Then again it is a treadmill business, meaning that you have to be at it all the time, you cannot run very fast and you cannot stop. But the saving grace is that each of these can become a sharp differentiator and entry barrier for competition, if you are able to get it right – and consistently. So, if you have chosen to be in this business or are in it already and wondering how to grow profitably, here is a list of things to think through from Vikram Bhatt of Enrich Salons, that has closed their second round of capital infusion and are on the way to their next wave of expansion.
Have a vision: Build the best from the first brick, so you have a solid platform in place. In our early years, we had an idea that we wanted to create a professional set up. We, therefore, ensured that in the framework we created ground up – registering a company in place of partnerships, having a no salary advances policy, ensuring that there was transparency in the way that salaries and incentives were calculated, ensuring that salaries were paid on the same date every month without fail, and extending the same policies to the landlords for the properties that our salons are located at. A lot of this has to be done from the start, as it can be very much of a challenge to make changes later.
Have a strategy in place: Build a business not a salon. It is creditable to make a single salon successful. But in order to make it investable you have to build a business – the essential difference being you need a business model and you need to have systems and processes in place. It means having a plan and a metric/ benchmark for each aspect of the business and knowing how to maintain it. This way each additional salon should be easier and faster to set up and operate. If you have a business model in place, you can keep optimising it as you get better at the business. This then becomes the key input for your investment model later. At Enrich, within the first few years we decided that this was a business that we want to be in for the long haul. That helped in taking thought through measures rather than go with work arounds or temporary solutions for each area of the operation
Decide what you want to be known for and drive it with purpose: It is not enough to just build a business, you have to build a brand. And for that you have to decide what you want to be known for.Arrive at your positioning. And that doesn’t mean being the best you have to identify which aspect of the business you want to be best at, for which segment of Customers. Because you can’t mean everything to everyone. You have to make choices – positioning is an exercise in sacrifice. You are taking a call on what you will invest in and what you will not. Once you make this choice drive it purposefully and consistently. At Enrich, we want to be known for a consistent premium service experience delivered at a price that is lesser than what a Customer would expect for such a service level. We want to be the go-to place in the catchment area for our Customers for their regular beauty regimen. This means being in tune with the Customers expectations that might change over time. For example, we introduced salon services at home for women, or gel nails and nail art as Customers needed these. It is always on attempt to anticipate and meet the changing needs of their beauty regimen.
Create for scalability, begin early: There is an insight (and a book too) that goes – ‘What got you here won’t take you there’. What that means is that what you can pull off as an individual, or through sheer passion, can get you to a certain stage. But to scale up to 10 or 20 or even 100 salons, you will need a different strategy and skillset all together. Think systems, processes, partnerships, teams and more. Being aware of this and making investments in each of these regularly is important. It also means evolving constantly and taking calls on build vs buy options. Having a scalable model is all about having a proven product and a business model that can then multiply revenue with minimal cost. We had already started investing in each of these areas and that’s what got us our first round of private equity funding in 2010 that helped us scale up our business and take it to the next level.
Plan initiatives for creating momentum: A loyalty programme is an initiative that will create traction/ pull for you. There can be many such initiatives that can directly or indirectly create traction for your salon. Several years ago, we started a process of sampling the experience for all our new salons, then a Quality (Process & Hygiene) Audit, a Customer Experience Audit and so on. Each of these can work like a magnet creating customer pull in interesting ways. This momentum then goes a long way in creating sustainable value for your business and brand
Read the full story in Beauty Launchpad January 2019 issue.