Before You Buy a Gas Station Business Know the Five Dangers

78A large number of entrepreneurs want to buy gas station business opportunities because the industry seems to thrive whether the economy is strong or is ailing. Like a grocery store or energy provider, the gas station supplies something that most everyone needs.

And the connection with a companion business, such as a car wash or convenience store, can return substantial profits to the entrepreneur with a ‘buy gas station business’ strategy. No special knowledge beyond basic business competency is needed to run it efficiently.

There are risks, however, particular to this kind of business, which a prospective buyer must understand. Understanding those risks and how to avoid them can help the entrepreneur enjoy success with a sound gas station buy.

1. Ground contamination is common among petroleum retailers who haven’t upgraded to newer, leak-proof storage tanks. Most communities enforce environmental regulations for gas stations. Any business with petroleum leakage will be force to close down so contaminated soil can be removed and storage facilities improved. Finally, a new station is built on the site. What a problem for a new station owner!

Anyone seeking to buy gas station business opportunities is advised to insist that any purchase agreement require testing of soil samples, and that results show no contamination.

2. A related issue is condition of the storage tanks. Older steel tanks invariably begin leaking after years of use. Newly installed gas stations and those refurbished are outfitted with double-wall fiberglass tanks (referred to as DWFG in the industry). And the tanks are equipped with leak detection sensors. Any offer made to buy gas station businesses should include a provision requiring that up-to-date fuel storage is part of the deal.

3. The failure to determine who owns the property on which the station stands, before the purchase is complete, can lead to a terrible surprise. In many cases, even California’s major oil company franchisors have posted their large, familiar signs on property they don’t own. Imagine the distress for owners of name-brand oil company franchises who discover, the hard way, that the franchisor’s rights to the property were “on a short fuse.” A ten year sublease is meaningless if the sublessor – the oil company with the master lease – loses its right to conduct business at the locale.

4. It’s reasonable to expect when making an offer on a gas station that access to the property will continue to be as easy in the future as it was in the past. But what if the local government plans to bulldoze streets adjacent to the station for underground utilities repair or road improvement? Most business offers don’t include a contingency about getting satisfactory information from the city’s planning and development department. But a condition with that requirement ought to be included in any offer to buy gas station business assets.

5. The possibility of paying too much for an enterprise in this category is a major risk for someone ready to buy gas station business opportunities. It is a mistake to believe seller or broker claims that the appropriate price is determined by gross sales, or number of gallons pumped every month.

Like any small business, a gas station should be valued on the basis of the seller’s earnings before deductions for interest, taxes, depreciation and amortization. Pump volume or gross revenues may have no relation to earnings, and should not be considered when determining a station’s value. The buyer is safe using the earnings multiples applicable to most small businesses.

The top of the multiples range is about three times average annual earnings recorded the past three to five years, and it can be applied to a business with a seller ready to help finance, plenty of equipment in good shape and a long-term lease at market-competitive rates.

The purchaser who has “buy gas station business” on the to-do list, and is considering a company that doesn’t offer these benefits, should consider the right price to be about twice the annual earnings average. And many opportunities in the industry have a value using a multiple somewhere between two and three.

The entrepreneur wanting to buy gas station business opportunities might invest in a company or companies that are very profitable and not too complicated to operate. But the benefits will only accrue to a buyer who is cautious to avoid the risks inherent in purchasing this kind of business.

Marketing Mix – 4 Pricing Strategy Alternatives

9Pricing is an important part of your marketing mix strategies. Pricing can help or hinder your product or service sales. Given that your product is good quality, that it has the features and benefits that your buyers want and need, that it is differentiated from your competition, and that it has a good cost structure and a good, strong promotion and distribution program, your pricing strategy for your product or service can help you sell it, or not. Pricing strategies can have a very direct impact on growing your market share.

Four alternative pricing strategiess for your business are:

  • Generic or economy pricing. This strategy treats generic or economy-type brands with a low price – the value to the buyer is in the low price. Your business approach to this pricing strategy must be rooted in a low cost structure, minimal features, minimal promotion but still solid (not extravagant) benefits.
  • Differential Pricing. With this strategy, you might choose to price your product differently by buyer type (e.g. retail store, online store, a department store), by geographic region (e.g. the California market might be higher priced than Illinois), by volume purchased (e.g. a customer buying a large volume would receive a different price than one buying a small volume), by national account segment (e.g. you might negotiate special differential pricing with a national account versus the price you would charge to a local account). With all of these differential prices, there must be a justifiable reason for the price differences.
  • Premium Pricing. This strategy is commonly used for luxury items or high end, high value goods, such as expensive jewellery, boats, planes, estates, etc. Only use this strategy if your product’s value is recognized by your market as being a premium or luxury good.
  • Captive Product or Companion Product Pricing. This pricing strategy is also used in product line pricing. This strategy bundles, and usually packages, like products together to be priced as companions (for example, a mixer and a mixing bowl) and as captives (for example, pens that have to have a specific refill (not generic), razors that can only use a specific blade, etc.). Captive or Companion product pricing often relies on packaging to offer the two products in one package (for example, a trial pack of blades with the razor; one pen refill packaged with the pen; or the tape refill with the tape dispenser). Then when those blades, refills or other companion products are used, the price to buy new blades, refills or other products is significantly higher than the original priced package.

Thoroughly analyze your product, your buyers, your competitors (and their possible actions and reactions), and your market before you decide which pricing strategy would best-fit your business. Then review pricing strategy by product, and by product line, on a regular basis to make sure that the fit remains the best.

Community Supported Business

8You have heard of CSA (Community Supported Agriculture). A CSA is a way for the food buying public to create a relationship with a farm and to receive a weekly basket of produce.

By making a financial commitment to a farm at the beginning of the season, people become “members” (or “shareholders,” “investors” or “subscribers”) of the CSA. The CSA movement has helped to make independent, healthy farming sustainable.

The principle of CSA is now being applied to many other sectors of business activity. With the economic melt-down, the activity is likely to grow even faster. Community Supported Business makes sense, and especially to the community banks.

Books: The system can work equally well with other local consumer markets. Examples include community supported publishing (e.g., Southend Press) and bookselling. I ‘invest’ in a village bookstore, Putney Books in Vermont, where I have paid $1,000 for a ‘certificate’ and get books to the value of $25 for 48 months and a ten percent discount in the store. This gives me a 20% return over 4 years, as well as the discount and the reward of supporting a local enterprise.

Dining: In Portland, Maine, there is a Community Supported Kitchen that provides local and organic prepared food year-round to members, on a basis similar to the CSA system. In Morrisville, Vermont (which has 55 CSA farms), there is a CSA-type Restaurant where, in exchange for a $1,000 loan, investors get coupons that they can redeem for meals at the rate of $90 a quarter, over three years.

This is a petty meager return on investment, but in the first six weeks of launch, the Bees Knees restaurant had raised $20,000. They began began by selling $1000 “community supported restaurant certificates” to help finance the project. In return, customers receive $1080 in vouchers for food. Customers also lined up to give $5000 unsecured loans. In return, investors will receive a 4% return on their investment and a 10% discount on their tabs.The venture was followed by Claire’s Restaurant, in Hardwick, Vermont. Launched by four partners in May 2008, it too, is based on a community centered investment and business model and raised more than $40,000 in community loans.

Fishery: Port Clyde Fresh Catch is a community supported fishery in Maine, where investors can sign up for a weekly share of wild-caught shrimp. Fourteen week shares $210) offer 10lbs of shrimp a week or half shares ($105) that yield 5lbs. Another is Skipper Otto’s Wild BC Salmon. For $250/year members receive approximately 35lbs of whole, fresh and/or frozen salmon that is available direct from the fisherman, amounting to roughly 7 fish at around 5lbs each (about $7/lb).

Manufacturing: The concept of Community Supported Manufacturing, means taking back the means of production in a socially and environmentally responsible way. The concept here is to relocalize manufacturing. An example is Prumitei the fire arts center at Francardu in Corsica, where my friend Fanfan Griffi created the craft manufacturing center and restaurant with workshops all based on the use of fire: ceramics, glass, and bronze founding. He raised money from local governments, non-profits, large and small shareholders. The Post Carbon Institute has a briefing on CSM and a Power Point presentation you can download.

Energy: WindShare is pioneering Toronto-based ‘for-profit’ co-op with a mandate to provide renewable electricity to the people of Ontario through community ownership. The internal rate of return is projected at 7.23% per annum over a 20-year investment period, with no middle man, no fund management fees or other associated administrative costs. Sixty-six investors from Minnesota snapped up all the available shares in two wind generation companies (MinWind I & II) in 12 days. Eighty-five percent of the shares must be owned by farmers, with the rest available for local townspeople and non-farmers. Each share gives the owner one vote in the company and no single person can own more than 15 percent of the shares. Now there are MinWind III-IX, similar to the first two projects, which began producing power in 2002.

Chicago-based Indie Energy the geothermal-based clean energy building systems has a mission with a simple equation that became: Local Geo + Local People = Economic, Environmental, and Social Profit. “Organized labor, along with the private and public sectors, are the three pillars upon which the new renewable energy economy will be built,” said Daniel Cheifetz, Indie Energy CEO. Indie Energy is backed by ShoreBank which is committed to building vibrant communities by providing financial services and information to create economic equity and a healthy environment.

What next?

The opportunities are near endless. The only considerations are that he product can be consumed within the community and that there is a way of mounting the venture on a for profit, not-for-profit or a hybrid. With the standard business loan availability having dwindled to a trickle and the risk-capital tap having been turned off, here lies nothing but a wide-open blue ocean with few fish swimming in it.

A companion market is social or P2P (Peer to Peer) investment and loans, using intermediaries like Lending Club, a social lending network where credit-worthy borrowers and individual investors come together to provide value beyond what traditional banks can offer. Or on a do-it-yourself basis you can use Virgin Money. They manage loans between relatives and friends and are a pioneer in the emerging social lending space.

You can create a sustainable future for your business through caring about people and the planet, as well as your profits, provided you are clear about your purpose. Will has a lifetime of entrepreneurial experience and a high motivation to help you realize your own business dream.

Small Business Pursuit of Government Contracts

7US Government awards billions of dollars every year to small businesses, so how do you differentiate and win your share of these lucrative contracts?

As a small business you already have the passion and desire to deliver quality solutions to the US Government, which is an important characteristic to start with. To help you succeed, the following article discusses common pitfalls to avoid and how best to pursue the government as a small business.

Most large corporations assemble dedicated teams to go after an opportunity spanning several years, and hire specialized resources to directly approach the Hill on behalf of the organization. If your small business is capable of implementing that strategy, then by all means go ahead. However, most small business do not have deep resources to pull from and need a more focused and efficient strategy.

For a small business, the following strategy is more appropriate:

  1. Identify your core service or product to be offered before approaching the US government
  2. Identify new procurement opportunities posted by the government
  3. Establish relationships with the appropriate “buyer”
  4. Leverage your “buyer” relationship to guide your internal development process and/or influence the solicitation to better match what you can deliver
  5. Submit a complete and accurate proposal

I will assume you have already established step 1 when you wrote your business plan or similar document when forming your business. If not, search the web or seek out a mentor to help generate a business plan before proceeding.

Procurement opportunities are not difficult to find once you learn the basic steps, however, you want to avoid pursuing opportunities that are already allocated to the competition. When searching for new opportunities you want to pursue and submit a proposal for the following types, all of which are postings by the government seeking input from industry:

  • Pre-solicitation
  • Request for Information (RFI)
  • Sources Sought
  • Combined Synopsis/Solicitation
  • Broad Agency Announcement (BAA)

And avoid the following types:

  • Request for Proposal (RFP), government has already allocated funds based on an RFI or similar process and is in the final stages before awarding a contract. Since the funds are allocated, the government has already determined what and from whom to buy from
  • Intent to Award – government has determined that a sole source non-competitive award will be given to a specific company, and is formally announcing its intent for industry to protest. As a small business it is usually not worth your effort, but you will have to decide on a case by case if it is appropriate to protest and win back from a competitor

Now that you have determined what to offer and which basic types of opportunities to pursue, the following list will provide a means of locating the postings for you to evaluate and consider:

  • Federal Business Opportunities, is a free website managed by the Federal government, and is a central spot to monitor for postings. Visit the website and explore the Getting Started tab to learn how to setup an account to be auto notified when new postings match your criteria.
  • Combating Terrorism Technical Support Office (CTTSO) BAA Information Delivery System (BIDS) is an agency setup to help small business develop and transition new technology into production. The programs focus on technology to counter terrorism at the Local, State, and Federal level.
  • General Services Administration (GSA) Schedules. Managed by the Federal government, your small business can apply and get a contract to deliver your solution to Local, State, and Federal agencies. However, the GSA Schedule is only a contract vehicle, you still need to find the buyer and have them allocate funds to complete the purchase

GSA Advantage is the companion site to GSA Schedule, which lists all of the contracts in place with pricing information for potential buyers. You can review the website for information on your competitors and assess how your product or service would compare

Up to this point we have discussed how to identify new pursuits. Keep in mind, just because you have located the perfect opportunity and can deliver what the government wants, you are not the only company pursuing the opportunity. You next need to take steps to improve the odds in your favor by leveraging what is unique about your organization. The following list goes beyond the product or service you are offering, and explores contractual as well as business aspects that will improve your chances of contract award:

  • The most important thing you can do is build the relationship with the “buyer”. By using the FBO postings identified above, you can determine which program office or “buyer” is listed in the posting, or by inquiring from the contract officer. Note that the contract officer is the gatekeeper for the opportunity and is not your buyer
  • To demonstrate your ability to deliver prior to engaging the US Government, establish past performance by completing commercial contracts. This is not essential, but goes a long way to show you are a real company and are ready to do business
  • Visit the Small Business Administration website to determine if you are a disadvantaged small business, and if so get certified as Veteran Owned, 8(a) Business Development, Alaskan Owned, etc… In this case, more is better so get certified for all that apply
  • If your product or service is appropriate for the GSA Schedule, then get the contract vehicle in place. One of the major challenges on the government side is awarding new contracts with a company. However, if you have already established a contract vehicle through the GSA Schedule, you help ease the process for your buyer. But remember, GSA Schedule is only a contract vehicle, you still need to find the buyer and the buyer needs to allocate funding to complete the procurement

In summary, we have discussed how to efficiently locate new opportunities with the US Government and steps you can take to improve your odds of winning a contract. It is now up to you to execute the strategy and feedback your success or lessons learned.

In a future article I will cover how to generate an accurate and complete proposal for submission.

Copyright 2011 by Andrew Bonneville. All rights reserved.

Reducing the Risks of New Product Development

6Risk, a Constant Companion

1. New Products are only successful if people buy them.

2. Studies say that 50% or greater of new products fail. Why?

  • Not because they don’t work
  • Not because they are not good products.
  • Not because of technical issues.

3. Then Why?

  • A Faulty Understanding of customer needs.

If you don’t understand what the customer needs or wants you can not fulfil that need.

Customer Integration

  • Integrate customers into the innovation.
  • Ask for product ideas
  • Only pursue the most popular
  • Get purchase commitment before final development
  • This is called “Collective Customer Commitment”

Major Changes Needed.

  • The traditional New Product development process.
  • Makeup of New Product Teams.
  • Involve the Customer, Designer, Production and management in the NPI Decision.
  • Reduce the Risk of Failure by getting purchase information before Production.
  • Sell Before You Produce.

Limitations to Traditional Market Research

1. Focus Groups

  • Too small to be indicative of population.
  • Lack Realism, only verbal description of product.
  • Not a measure of real purchasing behaviour

2. Test Marketing

  • Expensive
  • Time Consuming
  • Exposed to high level of noise from competitors.

Food for Thought

  • Only 50% of fortune 500 companies use focus groups.
  • Less than 25% of fortune 500 companies use limited roll out or Concept testing.
  • Many consumer goods companies do not regularly survey potential customers.
  • Excuse; “Behaviour of Customers is often impossible to predict”

So what do they “Do”

1. They develop variants of existing products.

  • Different sizes
  • Added functionality

2. They put off manufacture till they see what will sell.

  • Stock or manufacture generic components.

3. Manufacture on Demand. Full Customisation.

  • Customers define one off products for manufacture.

Collective Customer Commitment

1. Not a new idea

  • New homes bought from plans.
  • Concept products assess the willingness to buy

2. What is new

  • This concept used for FMCG products.

3. Why?

  • Consumers now are more informed.
  • They want a greater say in what they purchase.

Collective Customer Commitment

1. Very successful when testing Innovative Products.

  • Yamaha, Electronic Guitar. An aid to learning how to play guitar. Pre order enough to allow production

2. Very Successful when market segment is small

The Best of Both Worlds

1. Does Collective Customer Commitment suit all firms

2. No.

  • It will suit some firms and will not suit others.
  • Some firms will use a hybrid of conventional and collective customer commitment.
  • For firms that can use it, collective customer commitment can reduce significantly the Risks associated with new product development.