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Kelli the Baker

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With the election tomorrow, a lot of attention is focused on the economy and which candidate has the best plan to fix it. As a small business owner, this means a lot to me. I usually stick to cookies, not cash, on this blog, but I think it’s important to share my experience as “Kelli the Baker” in this economy.

To understand how the economy has affected Amai recently, it helps to know how we started. There are many ways to finance a new business, but I chose to go with loans over investors. The people I learned from started their businesses with the help of friends, family, and banks, and that’s the way we did it. In order to buy out my partner in 2006 I had help from my family who believed in my ideas and ability to make something of it. After working on the business and putting together a plan for a retail store, we needed outside financing to grow. I didn’t have a home or any other substantial collateral to put up for a loan, but I did have a good credit score. This helped me secure bank loans for reasonable rates. By doing this I put my personal credit and reputation at risk, which meant a lot to me, but the banks believed in our plan and gave us the money we needed to open the shop in 2007. While the loans were enough to open, it didn’t give us much of a buffer. We had to make money quickly.

Fast forward to July 2008. The retail shop had a strong opening, but the summer was slowing down. The majority of Gramercy residents left for the summer, and we felt the impact. To get through this downtime and start planning to expand, I approached banks for an additional round of financing. This time, I didn’t get any help. I faced rejection after rejection. I didn’t realize it at the time, since this was before the media turned their attention to the economy, but I was experiencing the credit crunch first-hand. I expected it to work just like it did when I approached banks to open the store in 2007, but this time it was completely different. I must have talked to every bank and small business advisor in the New York State area. I even tried the programs that were supposed to help businesses in times of crisis (World Trade Center funds, etc.). All of it was closed to me. By September I realized the banks were a lost cause, and the stock market was dropping and the government bailout was in full effect. The reality of the credit crisis was obvious to me, and I paid close attention to what the proposed “bailout plan” was offering. I heard a lot about homeowners and forclosures, but relatively little about small business loans. The government said the bailout money was going to be used to get credit flowing again, and I hoped it would help.

Now its November and I don’t feel much has changed. Amai does most of its banking with Chase, one of the “strong” banks, and they said they are currently revamping their application process and hope to have things updated by next year. It seems that the money they got from the government is going more towards purchasing other banks than releasing credit. This is definitely not the way the bailout package was sold to me. Credit is not flowing again as far as I can see. I also read about CEO compensation packages and $400,000 executive retreats, and I start to feel even more mislead.

I am a strong believer in small goverment and letting market forces work on their own, but when banks, homeowners and small businesses are so intertwined that a few companies and selfish business practices can bring down an entire system, something is wrong. I have personally seen CEOs of small to medium sized businesses do harm to a company resulting in layoffs, and they walk away with millions. How does this happen? If my business fails or I have to layoff an employee, it would only happen after I have cut everything possible from my end. I am responsible for the success and failure of the company, and I take the hits or rewards associated with it. How could I walk away with a million dollars and lay somone off? It’s unimaginable. It’s infuriating to think this is being done by people who manage money and have control over whether I get loans or not.

Amai is at a critical point in its history. The retail store has been open for one year, and we have had a chance to learn what is working, and what is not. There are things we’d like to change in order to make next year even better, and with the right financing we have great opportunities to expand. Overall, the business has been successful. We have good traffic and the majority of our customers are repeat customers. We don’t have a big marketing budget, but have received great press and built a respectable reputation that I am proud of. Even with that, we had a tough summer. Gramercy is a seasonal area, and at least 50% of the residents left town. We saw people in September that we hadn’t seen in the store since May! We didn’t expect such a drastic change, and it hurt us. As a small, independently owned shop we do not have a huge stash of cash in the bank to get us through tough times, so every day and every dollar counts.

Amai is fortunate that we have seen our business grow in September and October, even though the economy has declined. We are also very lucky to have opened in 2007 when we were able to get loans. If we attempted the same thing this year, I don’t think we would have been able to do it. I expect that our business will continue to grow into 2009. Tea and sweets still provide a relatively affordable relief from the daily stress of the world, and we are happy to provide them. For now, we will need to be self sufficient – the true American way.

Going forward I will turn my attention to outside investors and other forms of financing to help Amai grow and reach its fullest potential. The election tomorrow may start to change the economic tide, but my perspective has permanently shifted. I don’t count on banks, small business associations or the government to help. I will put my faith in my business plan, customers and employees rather than a proposed tax plan. As our button-of-the-day will say tomorrow, “I like Amai”, and I’ll keep working on it.


Marc says on November 4th, 2008 at 12:37 am:

What if we believe in your business too? How can we help? I stop in when I am in town, but that is only a few times a year. What about the rest of the time?

Kelli Bernard says on November 4th, 2008 at 8:04 am:

Thank you Marc, I really appreciate it. Do you mean besides eating 10 scones a day in July and August?? I’m just kidding. Thanks for caring enough to read the post. Just by responding it helps. I usually keep these things to myself, but I thought it was important to honestly share my experience with all of this since I know many others are experiencing the same thing. We will be talking to investors over the next few months, so if you know of anyone looking for a good opportunity feel free to send them my way. Thank you! Please say hello next time you are in.

Laurie says on November 7th, 2008 at 2:13 pm:

While I am sorry to hear that you are experiencing these financing problems…I just know, because I know you, that you will still go forward & grow! It will just take longer than anticipated. Sure wish I could help. I would be stocking up on “botannical brownies” at twice the price if I could! Hmmm…but guess you need more than that! A very thoughtful & enlightning post! I am wishing you the best, as always.

Dr Phil says on November 10th, 2008 at 8:41 am:

I don’t mean this to sound harsh, and I am very, very sorry you are going through hard times, but your current business troubles are not *entirely* the governments fault. While I hate what is happening as much as anyone else, I keep seeing a distinct pattern of people *not* taking responsibility for their own actions and it is perfectly displayed in your post.

Yes, it completely sucks that you cannot get more financing and that you have had a slow summer. However, with more pre-planning, you could have (should have), for example, analyzed what kind of walk-by traffic your location has year-round BEFORE going into business. Maybe you did this. If yes, then why did you open at that location? If not, why the hell not? If you didn’t have enough of a financial cushion to survive a slow summer, why did you even open? When gambling like that with your future, sometimes you win big, sometimes you lose.

Yes, it is a freak thing that happened with the credit slow down, but with proper planning, your pain really could have been minimized. I don’t see *one* sentence in your post where YOU take partial (or any) responsibility for what has happened. I don’t mean this to be harsh, but it is common sense to not *assume* everything will just keep going well forever.

I feel it is the same kind of thing as homeowners who complain that they cannot afford their mortgage anymore. But, they should have thought about IF they could really afford the loan the bank was giving them if they lost their jobs. In most cases, this would have saved the pain of foreclosure. Just because someone wants to give you a lot of money, doesn’t mean you should take it if you are not ready for the consequences. As Dr. Phil says, “You choose the action, you choose the consequences.” :-) I mean, banks don’t loan you money because you are a good person with a great idea, they are making money off you! They could care less if you end up out on the street or jobless.

But again, as the story in America usually goes, people want (and are allowed) instant access to money and instant credit even if they have nothing to back it up. I am sorry for your current troubles but maybe this has taught you (and all small business owners) an important lesson about planning and common sense. I wish you all the best and really hope your business picks up, as I think it is a great idea.

I expect this post will either be deleted or will have tons of your supporters berating me for kicking you while you are down. That is not my intention. I just think it is more useful for 1) someone to be brutally honest rather than just a shoulder to cry on and 2) to get you to stop thinking of yourself as a victim of the governments (admittedly) lousy policies. Being a victim won’t help your current troubles and will not help with any future troubles.

Good luck and best wishes for the future.

Kelli says on November 10th, 2008 at 9:53 am:

Hello Dr. Phil – I would never delete this post, I appreciate you taking the time to share you thoughts. I have to say I completely agree with your take on personal responsibility. I think the lack of personal responsibility, both at a personal and corporate level, is what has gotten American into this financial situation. This post was intended to highlight the changing financial environment I have faced while opening this business. It is absolutely true that the business (and all associated planning and profits/loss) is my responsibility and as a business, we need to make money. No one who knows me or Amai would ever claim we think of ourselves as a victim. I encourage you to reread my post from a more open perspective to see this. I said things like “we will need to be self sufficient – the true American way” and in my final paragraph I said “I don’t count on banks, small business associations or the government to help. I will put my faith in my business plan, customers and employees rather than a proposed tax plan.” The thing to realize here is that even people with good plans to make money may not be able to get the funding they need to realize this potential. For example, I once called American Express, whom we have a good relationship with, and talked to them about extending our line of credit. They didn’t even take my account number or name, the operator simply said “We have been instructed not to take any further applications from ANYONE at this time.” That sort of lending policy is a result of this market. Of course American Express is not the only financing option in this world, but it does show how things are changing. I wish we had more reserves to smooth out our cashflow and have an easier first year of opening, but we made the best plans we could, banks agreed with our plan, and at a certain point we had to jump in and learn. This is my first business and I got advice from small business advisors and fellow entrepreneurs, but they were often wrong and much of it we had to learn along the way. Small business are hard and risky, but I believe it can result in something great. I have to say it does feel like the current financial system is stacked in the favor of large businesses. That’s what I meant to highlight when talking about how executives can walk away with millions and their businesses are failing. I know by opening a business I am taking risks, and I chose to do it. I could have made a lot more money this year sitting at my old desk behind a computer, but I wanted to create something new that I believe will benefit my customers, and me.

site admin says on November 10th, 2008 at 1:56 pm:

By the way Dr. Phil – how did you come across this post? Are you a regular Lovescool reader?

Dr Phil says on November 10th, 2008 at 2:33 pm:

Hey there. Thanks for being so cool about the post. I thought about it afterwards and I really regretted posting it. To be honest, I think I only had such a strong reaction because it was about the 5th or 6th story like that I had read today from various sites (I am researching my MA in entrepreneurship and innovation, currently) and it just makes me shake my head sometimes that the smart people are having these bad (somewhat avoidable) things happen to them. So I am sorry. :-(

Since you are an entrepreneur, there are some interesting theoretical books out there, if you are interested. Off the top of my head I can think of “The Innovators Solution”. It’s a bit tech heavy but still the concepts are worthwhile, even for your business.

And if I can bore you with some lecture notes “…winner (entrepreneurs) are guided by a shared strategic vision and are driven to be responsive to market requirements. There are no standard formulas on how to cope in chaotic environments, but there are distinctive features of successful responses to the chaotic market environment. One of them is external orientation, an adaptive planning process, a continuous creation and renewal of new sources of competitive advantage. The managerial challenge is that marketing problems are characterized by various degree of uncertainty due to uncontrollable factors present in
the human judgement. Strategic marketing emphasizes that strategy development needs to be externally oriented – towards customers, competitors, the market and the market’s environment stressing the need for a system that provides assistance in an inherently complex decision making, sensitive enough to be applied in a variety of situations.”

Whew. Anyhow. Sorry for being a jerk. Thanks for be cool about it.

PS: I am not a regular reader, just found your blog linked from another food blog. But I will be now!

latifa says on November 10th, 2008 at 3:19 pm:

Dr.phil and kelli…your conversation is very useful and both of you have a right point of view.

As a home baker dreaming of future buisness, i agree with you kelli that small buiseness is risky and many of us could not get suffered from the financial crises if they sat on there old desks and made there job.

But if all talented gifts lost the faith in themself, we definatly will not be sitting today in thier beautifull bake shops eating delicious patisseries made from scratch.

” who the hell will sacrifice his/shes job, mony and time for the sake of a crazy lovley hoppy! “

Lara says on January 17th, 2009 at 10:54 pm:

Ok…so here’s yet another example of how you amaze me! Having the ability to stay calm, cool and eloquent. While reading Dr. Phil’s comment, I felt my blood beginning to boil and thought of all of the ways that I might respond, if I were you or simply in defense of you. But then I went on to read your response and realized you said all of the right things and made a better point while doing so.

Aside from that, I really enjoyed the post (although a little late). I’ve thought alot about you and Amai during all of this and only hoped that y’all were weathering the storm. I know everything has not gone exactly as planned but continue to believe in your work and business model, and the pieces will fall into place. This year will only make for a stronger and much more successful Amai (and owners)!

Kelli says on January 18th, 2009 at 11:40 am:

Thanks Lara! You know you want to come back to New York and bake with us :)

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Lovescool is the documentation of a journey to discover what sweet things are out there, why people love them so much, and perhaps what it takes to start something new.

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An interest, that turned into a blog, that turned into a career. Kelli Bernard is now the owner and baker of Amai Tea & Bake House.

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