Kate Maloney speaks with conference goers about her on line business Costume Craze.
How do you go about starting a home based business? The owners at Costume Craze weren't thinking of costumes when they began their venture, they were focused on computer software. An experiment to market the software started with monk robe costumes just to show how the software worked. The sale of these monk robes was such a successful venture the business headed off in a new direction.
Kate Maloney said running a home based business is the same as running a business outside the home. The same business rules apply, you need to spend less than you make.
Costume Craze started in 2001. Maloney graduated from Brigham Young University in 2002. Her brother Matthew developed the computer software which he wanted to market and he wanted Kate to help. Also working on the business was their mom Kathleen who previously managed a doctors office. No one had any experience in running a retail or an online business. "Even if you don't have experience, if you have the drive you can make it happen," said Maloney. The motto for their business is thousands of costumes, millions of smiles. The website is costumecraze.com. Over the nine years the company has been in business, Ghost Busters have been a hot seller and the Fred Flintstone costume. "This is a great costume for couples and the kids can go as Pebbles and Bam Bam," said Maloney.
To begin with the business didn't have any employees, her brother was still selling the software, but eventually he stopped and concentrated on the costume business and Kathleen started working at the costume business full time and gave up the doctors office. Kate began thinking "what have I done?" The business was getting a couple of orders a week and Kate wondered if it was going to work out. In 2002, orders began picking up. One day she took 22 packages to the mail and was just thrilled with those orders. "I knew we had a lot of work to do. We only had 12 costume selections on our website. This past year we had $10 million in revenue and 27 year-round employees and we add 175 employees at Halloween. Our biggest shipping day was 18,000 packages. We have 15,000 different costumes now. It's been a fantastic ride and an amazing seven or eight years. I have learned so much. I studied entrepreneurship in college but there are so many things they don't teach. In March 2002, Matt bought 140 Jedi robes and by September they were all gone," said Kate.
Kate said they weren't spending any money on advertising, but investing in their infrastructure. The software Matt developed gives the company a competitive advantage and these savings are passed onto the customer. Profits are invested back into the company and they own their own building now. The software allows a static website for people to go to for shopping, but allows the freedom to change prices and put items on sale automatically. Kate said the popular costumes are driven by Hollywood. Manufacturers bid on the costumes and they are licensed. Whoever receives these bids is who Costume Craze orders the costumes from and they are copyright approved.
One point for businesses to consider is how do you make yourself different. Lower prices was one approach for Costume Craze and customers need to be able to find you quickly and easily. The products on the website must be easy to find. Your business needs to be top in the search engines. "When people come into a retail store looking for something, they have put forth an effort to get there and they might purchase a substitute product. When people are shopping on line and you don't have what they need or they can't find what they need, they exit very quickly. You need to make people realize you have exactly what they need. We try to make sure everything is in stock year-round. There is a cost for all this inventory, but we can keep everything in stock. This is our brand. Our competitors are not as aggressive as us in keeping stock year-round. This works to our advantage. If the people want something and it's not there, you lose them," said Kate.
Kate was questioned on how it works out working with family. She said sometimes heart to heart talks are needed to get through tough times. You need to know the various personalities in the family. She has one brother who is an accountant and her sister is a lawyer, they don't have the personalities to work in the family business. But the three who are involved in the business get along well together. "You don't need to know the answers to all the questions," said Kate.
You need to have an exclusive with one thing, something you are known for. Like Walmart, they are the only place that you can get hand-trimmed Tyson chicken trimmed and ready. Having an exclusive builds customer loyalty. Costume Craze has 5,000 more products than their competitor. Costume Craze targets customers who are looking for something specific, in stock and at a good price. The costumes range in quality from $9.99 to $1,000. Costume Craze stocks $2 million in inventory. Kathleen does the buying and forecasting on repeat products. Kate adds new products and new product lines. Right now she is working on expanding the jewelry line and colored contact lenses. Customer Craze has a policy where if you place an order by 4 p.m. mountain time, the order will be shipped out same day. "If you want it tomorrow, I can get it to you tomorrow. We are kinda like control freaks. I like to have that control to get things shipped quickly," said Kate.
Kate said the business expanded so fast they ran out of room at their home and moved into a warehouse in 2004. Prior to that desks were set up in bedrooms and the Elvis and Marilyn Monroe costumes were stacked in the kitchen. When they got up in the morning, their employees were already there. On Halloween of 2003 their biggest day was 700 packages. Several times the police stopped by to see how things were going. When they ran out of room in the house for inventory, they rented a U-haul and parked it on the lawn. They decided to just work through things and "figure it out later." You don't have to have all the answers all the time. After the Halloween rush was when they purchased a warehouse. Then something started happening, after the bills were paid, except the UPS bill, then it was Nov. 1 and 31 orders came in, on Nov. 2, 30 orders came in and Nov. 3, 30 orders came in and on and on; we became a year-round business. "We are busiest around Halloween, but it's an amazing thing. We have 400 orders a day year-round now. We need the right mix of inventory. We stock the Flintstones all year, but witches are in demand only around Halloween. We have international customers and sell a lot overseas," stated Kate.
Kate said they were turned down six times for a SBA loan. They went to a bank and established a lending relationship with them. They went from a SBA to a commercial loan. In the early years, there were no paychecks and she went three years without new shoes or clothes and eating peanut butter and jelly. "It's risky, but it's a calculated risk. You need to know that what you're doing is going to work. You have to sacrifice before it takes off. We've gone from $700,000 to $5 million. We had big dreams. We increased our product line and the business grew. It didn't feel like sacrifice, it was the natural thing to do," Kate said.
Kate said the social networking sites are important. There was a mention in a blog about the sassy Big Bird costume and hits to the website went way up with people looking at that costume. Once something is up there on the blog it stays there.
Kate said there are several myths surrounding people who own their own business. One myth is that you're rich.
Sometimes you need to just let your mind wander and think of ways to fix things. Kate said she's not in it for the money but for the intrigue of watching something grow. You need money to live.
Another myth is that you get to tell people what to do when you own your own business. "You want to delegate, but it's hard, to let things go," said Kate.
Another myth is that you can take a vacation anytime you want. That's just not true, you have to be there to run the business.
"I enjoy being an entrepreneur and coming up with new ideas. Being an entrepreneur is fun. I can't imagine anything more exciting and more rewarding," said Kate.