I have made many mistakes when it comes to my finances and business ventures and I want to share with you the story of my first business failure. It started off with a college friend and I scheming to make $1,000s and ended with me losing my entire investment and never speaking to that friend again.
Way back in my junior year of undergrad, a friend approached me with an opportunity. He had found a Craigslist ad with a guy selling a ton of stuff that we could easily flip at the local flea market and walk away with 5-10x our investment. He didn’t have enough money to buy it all himself and wanted to know if I would go in with him 50/50. I agreed to at least go with him to meet the seller and check out the merchandise.
We drove out to a farm with a couple of large chicken houses and met the seller and his wife. He took us into one of the chicken houses and we found several tables full of plates, cups, silverware, lamps, and other small items. Behind these tables were stacks and stacks of unlabeled cardboard boxes. We flipped a few of them open and could see more items like those on the tables, as well as books, records, and some electronics. In my head I estimated that there were thousands of items in all the boxes and even if we sold them at 25-50 cents a piece we could easily make our money back.
Then, the seller began his pitch and really convinced us we’d hit the jackpot. He claimed that he had inherited the property from a relative who recently passed away and that he had found all of this stuff while cleaning the place out. His wife mentioned that she had found a Tiffany lamp in one of the boxes and that’s why there were several of them spread out on the tables. She was certain there were other valuables in the unopened boxes, but didn’t have the time to sort through them all. They just wanted to unload the stuff quickly so that they could get back home to Texas and their realtor could sell the property for them. It’s important to note that this was back before iPhones existed so I couldn’t easily whip out a phone and Google “Tiffany lamps,” but I knew from the movie Breakfast at Tiffany’s that it was a famous luxury store and guessed that a lamp from there would probably be worth $100s. If I’d known that they were produced from the 1890s to 1930s and typically sell in the range of $4000 - $1 million, I’d probably have called BS, but I was a naive college student with dollar signs in my eyes.
We coughed up $1,000 to purchase the lot and then I ran out to rent a storage unit while my friend picked up a truck. We spent hours hauling all the stuff out of the barn and stacking it up in that storage unit. The next day we opened box after box, cataloging our find and throwing out items that we felt were too damaged to sell. We started to notice a lot of water damage in the books and records that we’d purchased and started to doubt ourselves.
The following Saturday, we met up at 6 AM and took a car load of stuff down to the local flea market. After paying $20 to rent a table, we laid out our stuff and spent several hours in the cold watching people pick through our items and walk off without even asking us for prices. We didn’t even make our $20 back that day and the doubt was really starting to weigh on us. We agreed to meet up again the following Saturday and take different items back to the market.
That was the last time my friend ever saw that junk we’d purchased. I made two or three more attempts to sell items at the market but my friend never returned to help and I never made a profit. Month after month passed and I continued to pay for the storage unit because I’d rented it in my name. I kept asking my friend for his half of the rent, but all I received from him were excuses. In the end I just stopped paying the rent and ignored the bills from the storage facility. Luckily, they just seized the unit and sold the items themselves instead of sending a collections agency after me.
In the end, I learned some valuable lessons around due dilligence and market testing. I had never attempted to sell items at the flea market before and was basing my decisions on items I’d seen other people selling. But, just because those people had the items for sale doesn’t mean they were actually making any money. If I’d walked around and talked to the regulars, I’d have been more aware of the types of items that sell and approximately how much I could expect to make. Also, as a college student who worked until 12:30 at night and slept in until 10:00 most days, I should have known how hard it was going to be to drag myself out of my warm bed at 6 AM every Saturday to stand outside in the cold winter air. Additionally, I’d purchased a bunch of stuff without knowing its value, its condition, or even what I was getting. Had we gone through more of the boxes before the purchase and seen all the water damage, we probably would have walked away. The worst part was that I fell victim to the sunk cost fallacy. Because I had already wasted so much money acquiring the merchandise, I continued to pay rent on a storage facility for months after I knew I wouldn’t be able to sell any of it.
If you are planning to start a business, I definitely suggest you start small to make sure you will enjoy it and that you have a viable market. Once you have proof that your idea is profitable and know that you’ve factored in all the costs, you can invest in scaling the business.
Was your first business a financial failure? What lessons did you learn from it?